Budget Process Will Be Huge Test For New Council –
It is rather striking that it has taken until the last day of November to have the first real workshop on the budget, but whatever. This council will be judged on one thing primarily, how it resolves the long-term budget issues.
The Long-Range Financial Planning Framework has been developed with three principle goals. First, maintaining a balanced operating budget that ensures that the city continues to provide the current level of services with the existing revenue sources.
While this sounds good, this might be the most problematic element. With 71% of the budget devoted to employee compensation, flatline revenue projections into the foreseeable future and increased future obligation for both pension and retirement health care, providing current levels of service figure to be a huge challenge.
Second, they will seek to develop appropriate funding strategies to address priority unmet needs not provided for in the current budget.
This has been a point of emphasis, because one of the points we have repeatedly made is that yes, the budget is balanced on paper, but that’s akin to saying your household budget is balanced when your pipes are leaking and your foundation is subsiding. We’ve simply forestalled the day of reckoning, but we cannot forestall it forever.
Third, they seek to preserve the current park maintenance tax which is subject to renewal in June of 2012.
The good news, if there is any, is that the city is going to look at issues that have been needed to be addressed for a long time.
Councilmember Rochelle Swanson has pushed long and hard for multi-year budgeting. The school district is required to balance budgets three years out. That is helpful because it requires us to make more realistic assumptions and it forces us to be judicious with the use of one-time monies. Honestly, that needs to be one of the biggest priorities of this period and the good news is that there is no good reason not to move to a multi-year budgeting process.
There is also to be a discussion on performance-based budgeting. Unfortunately, with the format of the meeting being a workshop, we do not have a good idea of what the city means by performance-based budgeting.
In general, performance-based budgeting looks towards results and outcomes as the basis of justifying the ways in which the city would spend money. The idea, I believe, would be to base spending priorities on outcomes and then be able to evaluate the success of the spending program.
Such a focus might help us better prioritize spending toward higher-priority outcomes and help eliminate spending on things that are deemed less important. But without a good description from staff, it is difficult to ascertain what that might be.
The council will also discuss what I think is THE most important issue, unfunded liabilities. We have discussed our unfunded liability in retirement health care. One of the solutions we have offered is to move from a pay-as-you-go system, which basically budgets the amount we need in a given fiscal year to a fully-funded system in which we would fully fund our liability in advance.
In order to move from one system to another, we would need to pay an additional amount of up to $4 million per year over roughly a 30-year period. However, in so doing, we would end up saving large amounts of money.
Less discussed would be a means by which we could increase retirement age, which would allow the city to reduce the time between city retirement and the time when Medicare kicks in and allows the city to be off the hook.
Most expensive to the city, once again, are public safety officers who currently retire at 50, and thus the city has to pay for their health care for 15 years after retirement. We could reduce that liability by one-third simply by raising the age of retirement to 55.
Non-public safety workers can retire at 55. There is at least a logic to safety workers retiring at 50 or 55, but why non-public safety workers? What is the rationale for that? If we raise retirement age to 60 or 65 for non-public safety workers, we would reduce a huge amount of costs.
We have talked about unmet needs, and one of my current concerns is our roadway conditions. We have likely spent the remaining available grant money and transportation money to fix some of the arterials, but a lot of the side streets and lesser-traveled roads are in critical condition. That could increase liability to the city, and it could be a public safety hazard for bikes, pedestrians and even vehicles.
Along the same lines is talk of re-allocation of existing resources to priority needs. One of the problems that I have with the budget cuts is that we mainly cut by attrition rather than layoffs. That obviously is advantageous to existing workers, but it means that we have lacked a plan for reduction of workloads. Now we are going to have to think about where the resources are going and make the cuts more logical.
One of the areas that the city had previously cut, the Professional Standards Unit in the Police Department, dealt with areas such as citizen complaints. It was a cut that former Councilmember Lamar Heystek fought hard against and this past week was restored.
These types of cuts may make sense on paper, but in the long run could end up costing the city even more. Thus, looking at the whole picture and determining budget priorities would seem imperative.
Finally we have a talk about the extension of the park maintenance tax. One of the broader discussions we need is what is our priorities are in the budget. Within the 71% of spending going to employee compensation is the fact that parks and public safety are a huge amount of the general fund, with some of public works coming from other funding sources. We need a discussion of what the big picture will look like and what our priorities are.
Tonight begins the most important on-going discussion this council will have. The question is really what road will the council take toward addressing these key issues.
—David M. Greenwald reporting
Good summary David. However if this is a repeat of past budget workshops it will be mostly listening to staff not discussing or coming up with new approaches. Agree? Any indication it will be different?
[quote]… a means by which we could increase retirement age, which would allow the city to reduce the time between city retirement and the time when Medicare kicks in and allows the city to be off the hook.[/quote]
Not OFF the hook, as I understand it, just smaller hook… City will still pay Supplement to Medicare, Part D, etc….
Good point, reduced our obligations under the law.
Frankly, to make any real dent in this problem will take real leadership from the interim City Mgr Paul Navazio. The City Council seems to take its lead from the City Mgr.
The Current City Council is made up of a lame duck Council member who will be gone in a few weeks and two new Council members who are just getting their feet wet, which makes the City Council somewhat dysfunctional at the moment – especially in light of some of the ridiculous decisions they have made recently.
Let’s see how Navazio does…
I just scanned the “Staff Report: City Council Budget Workshop” and see that no new information is included about the City’s growing underfunded pension liability problem. Along with the retiree medical liability, this is the most serious problem facing the City of Davis in the next 5-10 years.
I’ve asked Paul Navazio for the latest numbers from CalPERS, but he told me the City of Davis does not yet have them. A friend of mine who works for the City of Fullerton told me they got their actuarial report for public safety pensions from CalPERS in mid-November. What shocked me was that just for public safety, Fullerton is short $127 million. (I didn’t ask if he had the non-safety numbers.) Davis is about half the size of Fullerton, so we should be somewhere around half that number, give or take. In other words, our red ink for pension liability for public safety is going to be even larger than our retiree medical liability ($61 million) for all City workers. And I would guess in Davis our pension underfunding for non-safety is going to be close to that of the underfunded for safety. It’s a huge problem. It even trumps Zipcar.
What I don’t understand is why are all the public union employees allowed to received guaranteed pay raises when there’s no money to pay for it?
Why is it that instead of taking a collective pay cut, they’d rather fire a few token individuals and sacrifice services to the citizens that will suffer from the reduction in services?
InsideBayArea.com ([url]http://www.insidebayarea.com/crime-courts/ci_16738651?[/url]) has an interesting story today about the budget troubles in San Mateo. They are, in all likelihood, probably the same as ours in Davis. What is different in San Mateo, at least at this moment in time, is it sounds like they have members of their city council who are aware of their fiscal reality. (In Davis, I think we only have one member of the council, Sue Greenwald, who is a realist.)
Here is some of what that piece says: [quote] Faced with a “new fiscal reality” spurred on by dried up revenues and rising costs, city leaders Monday directed their budget axes toward city employee compensation.
At a special San Mateo City Council study session, officials discussed for the first time how to balance the budget over the next decade, which is expected to be far bleaker than the previous two, when tax revenues consistently soared.
…
But their tones changed when the discussion turned to employee costs, which make up three-fourths of the city’s $77 million budget. Although they took care to note that they valued the work the employees were doing, the council members characterized [b]the current pay and benefits structure as “unsustainable.”[/b]
Specifically, they agreed the city needs to look into corralling retirement benefits for new hires by signing collective bargaining [b]agreements that force employees to either retire at a later age, receive a smaller pension, or both.[/b]
Currently, public safety employees can retire at age 50 and earn a pension equal to 3 percent of their salary for every year of employment. Non-public-safety employees can retire at age 55 and earn a pension equal to 2 percent of their salary for every year of employment.
…
Also discussed were cutting city-sponsored [b]health benefits[/b] — the No. 2 rising cost for the city behind pensions — by [b]having employees pick up a larger share of the tab.[/b]
…
The hearing was the culmination of a three-month “financial sustainability” project featuring monthly reports and study sessions aimed at keeping the city in the black through the end of the decade. The shortfall for the fiscal year that ends in June is $2 million, and officials expect it to grow to $5.4 million next year and $7.1 million in two years. [quote]
God forbid the great schitty of Davis could ever claim to have their fecal matter together like San Mateo
[b]INDIGO:[/b] [i]”Why is it that instead of taking a collective pay cut, they’d rather fire a few token individuals and sacrifice services to the citizens that will suffer from the reduction in services?”[/i]
I have spoken off the record with a couple of negotiators for the labor groups for the City of Davis (neither of which works for the firefighters union) over the last two years and I infer from those discussions that unions in general think along these lines when it comes to cutbacks:
[i]”What we got in our last ‘negotiation’ is the baseline for the next. We’d rather lose a few members’ jobs if there have to be budget cuts than lower the baseline, because lowering the baseline hurts everyone in the union now, and later, when the economy is better and there is money to add new jobs, all workers, the veterans and the newbies, will have to start ‘bargaining’ from the lowered baseline position.
“In contrast, if we hold the baseline where it is, we will sacrifice a few workers, but the rest will all be better off now, and they will be better off in future negotiations because the next contract will start from the highest baseline possible*.”[/i]
Although I think that is what the unions generally think, the truth is that fiscal reality trumps all. Either our City Council is realistic and makes the changes I have been calling for in my column for three-plus years or a federal bankruptcy judge (who will be paid for by Davis taxpayers) will make those changes. The unions ideology is going to be trumped by fiscal reality, one way or the other.
*This is the exact same scenario which played out with the teachers union in Davis.
Headline: [b]Council Work Starts For Real Tonight[/b]
On second thought … they did not do anything or say anything or think any thing of any import whatsoever. We are doomed. It’s painful to hear them babble on meaninglessly. Don Saylor gave staff more than an hour to drone on about the budget process and the numbers from 09-10, when all of that was in the packet and surely every member of the council already read the information.
On a scale of 0-10, that was a 0. Even wee children think that workshop was laughable.
[img]http://www.baby-pictures.org/wp-content/uploads/2009/07/cute-laughing-baby.jpg[/img]
Read my first comment of the day.
Some dogs heard the council was going to have a budget workshop. What a funny notion that was:
[img]http://www.free-jokes-online.com/thumb/fanny-animals-dog-laugh.jpg[/img]
Even this puppy got the joke:
[img]http://funnyanimalpictures.net/data/media/1/laughing_dog_.jpg[/img]
And the cats agreed:
[img]http://www.sillycats.net/wp-content/uploads/2008/03/irs-laughing-cat.jpg[/img]
And the seal did too:
[img]http://www.guy-sports.com/fun_pictures/seal_laughing.jpg[/img]
The material for the workshop was not included in our packets, and was made available to us only on the dais. The City Manager and the Mayor set the agenda, and I do not know why they scheduled a workshop before the material was ready. I agree with Rich Rifkin that it wasn’t much of a workshop.
In the folder on the dais, which of course we hadn’t read, was a discussion of the unfunded retiree medical. Paul Navazio did not cover this most important of topics in his presentation, although it was included in the written material.
I asked a question about the costs of fully funding the retiree health, but the Mayor would not allow Paul to answer it.
According to the last-minute written material (which the public does not have access to as far as I know), it is clear that we are going to be paying off the unfunded liability with much higher rates than we pay today over a period of 20 or 30 years (this is not the first time these figures have been seen by us, but it was clear from the discussion that we don’t fully have our arms around it yet).
The figures that Paul included in the packet were dated; they were compiled a few years ago. During the break Paul told me he would calculate and send me the updated figures today which will specify the dollar amount of the added 20 or 30 year annual payments (over today’s costs) that will be needed to pay down the unfunded liability.
That figure is substantial, and will take a permanent structural downsizing to bridge.
While a dedicated workshop on unfunded liabilities will be planned in the future, the topic was covered, as it should have been, in the written material, and should have been part of the public budget discussion, IMHO.