Council Holds Tough on Budget: City Manager’s Budget Released To Public

Earlier this week, we criticized Interim City Manager Paul Navazio for tardiness in getting the budget proposal to the council and the public.  So it is noteworthy that midday on Saturday, he took the time to email the media the final budget proposal.

Writes the Interim City Manager, “Over the course of the City Council’s consideration of the FY2011/12 budget, a number of amendments to the original budget-balancing plan have been proposed.”

He continues, “At the City Council meeting of June 14th, the Council provided direction related to implementation of an additional $2.5 million in General Fund personnel savings in order to more aggressively address structural funding shortfalls across several areas of the budget.”

One of our key objections to the budget was the fact that the city was once again cutting funding from the Police Ombudsman contract.  Originally it was a part-time $60,000 contract, $10,000 was cut last year, and another $20,000 would have been cut this year, however, the council asked that be restored.  It not clear if it will be restored back to the $60,000 level as mentioned, or simply to the $50,000 level.

The big ticket is, of course, the inclusion of the $2.5 million in General Fund personnel savings no later than September 30th.  That is the provision that raised the ire of city employees.

Writes the Interim City Manager, “At the City Council meeting of June 14th, the City Council has directed the City Manager to develop options and recommendations for implementing an additional $2.5 million in General Fund personnel savings for fiscal year 2011/12.”

He continues, “Areas to be considered for potential savings include: a) re-organization/consolidation of city operations, b) alternative service-delivery models (contracting, public/private partnerships, shared services), c) program and service level reductions, d) targeted position reductions, and e) attrition.”

The big study that is likely to produce savings will be the Fire Operations report that will come later this summer.  While the city manager mentions reorganization of the Public Works Department, our understanding is that a lot of those funds are non-general fund and therefore will not impact the general fund budget.

The City Manager goes on to write, “In general terms, a $2.5 million reduction in General Fund personnel costs represents the equivalent of an 8.1% reduction in General Fund payroll, or the equivalent of roughly 20 positions. The same level of reductions on a city-wide basis would yield an estimated $4.0 million in savings – across all funds – and would be equivalent to approximately 33 positions.”

It is unfortunate that Councilmember Stephen Souza took that statement to mean that we were going to cut 33 positions.  The hope is that, through restructuring and employee concessions, most of that will be avoided.

Once again, the rank and file workers are not the focus of these cuts.  While to some extent any budget that has 80% of its spending on employees necessarily to be cut from employees, care can be taken to see that the budget is not balanced on the back of rank and file employees.

As the Mayor pointed out, some cuts to employee compensation, and perhaps layoffs, is unfortunately inevitable.  “When personnel and benefit costs account for 80 percent of the General Fund, that does have to be a point of focus,” he said.

The bottom line however, is that the focus here is not on the rank and file.

Mayor Krovoza emphasized that point to the Vanguard earlier this week, “There are paths that hold the promise of minimal staff and service disruptions.  I am confident of that.”

He added, “I will make every effort to preserve the positions of our rank and file staff.  These are often the people on the front line of serving our citizens, and so if we want to maintain service to our citizens, we shouldn’t be looking there for cuts.”

The difficulty, though, is understanding how this $2.5 million will impact a budget being passed this week when the impacts will not take place until the end of September.

As Mr. Navazio notes in the staff report, “Until specific personnel reduction proposals are presented and approved by the City Council, it is difficult to formally reflect these savings within the FY2011/12 budget and implementing Annual Appropriation Ordinance.”

He adds, “At best, savings would have to be reflected on the basis of across-the-board reductions in General Fund appropriations, for all departments and divisions. This would effectively authorize expenditures of personnel resources equal to 91.9% of current appropriations.”

The Council, as we have noted, has identified Transportation funding as a priority area for supplemental General Fund support.  The Vanguard has been hammering on this point since at least 2008.

The Council finally is taking heed, restoring the funds to allocate $1 million for street maintenance.

The City Manager notes, “Staff will be preparing a comprehensive review of current street conditions, and a proposed plan for increasing street repair work over the next five-year period. In addition, consideration will be given to alternative street repair methods in order to ensure cost-effective application of funding, consistent with community needs and expectations.”

The City Manager appears to have added the retiree health plan to the restoration of funding, in addition to the half million allocated to the Public Employees Retirement System.

“I didn’t hear one dime of that $2.5 million going into retiree medical or anything else.  I heard it going into roads and other things and infrastructure, nothing else,” Firefighter Union Leader Bobby Weist railed on Tuesday.

I suppose he will be relieved to know that $1 million will now go to funding the unfunded retiree health liability and $500,000 will go pensions, which was in the original council proposal.  He apparently overlooked that fact.

“The city’s required contributions for CalPERS retirement benefits are anticipated to increase sharply as a result of several factors, most notably the recent losses in the CalPRES investment portfolio as well as CalPERS’ updated actuarial model reflecting a general trend of higher life expectancy, combined with earlier retirements at higher levels of compensation,” the City Manager writes.

He adds, “Contributions could also increase dramatically, should CalPERS lower its assumptions related to future annual investment earnings (i.e approximately $1,000,000 per 0.25% change, on an all funds basis).”

On retire health, the city manager notes, “The current forecast for budgetary contributions [is] consistent with the current policy of incremental contributions (2% per year) until the City reaches its actuarial target funding rate of 19%-20% of salaries.”

He adds, “Per the above forecast, an additional $1.5 – $2.0 million would be required to fully-fund a 30% amortization of the OPEB liability.”

The question then turns to how this will be implemented.  Staff is seeking “specific City Council direction on how they wish to reflect the amended funding plan within the FY2011/12 Adopted Budget, to be effective July 1st.”

They propose the following, “Until such time that any specific budget reduction plan were presented, and approved by the City Council, a proposed General Fund personnel reduction would require a generic across-the-board reduction in the General Fund appropriations for personnel within each City Department of roughly 8.1%. The City Council should also consider whether an 8.1% personnel reduction be applied on a city-wide basis, across all funds.”

They add, “Should the City Council choose to reflect the $2.5 million in General Fund (or All Funds) personnel reductions within the Adopted FY2011/12 budget at this time, staff would not recommend that supplemental appropriations be included for the expenditure of these funds. Staff believes it would be appropriate (and advisable) to reflect any appropriations at the time that specific budget reductions are approved by the City Council.”

However, they note that should the City Council wish to include appropriations to reflect the planned uses of any General Fund savings included in the budget, the city manager recommends this following language:

“The appropriation for personnel expenditures, including but not limited to salaries and benefits, is reduced by $2,500,000. The detailed implementation of this reduction in expenditures shall be accomplished in accordance with applicable law. Recommendations and options for implementing this reduction in personnel expenditures shall be brought back to the City Council, no later than September30th, for consideration and approval.

The following appropriations shall be increased by the amounts shown: (1) transportation, including road maintenance and repair, shall be increased by $ 850,000; (2) allocations to a trust fund for unfunded pension and retiree medical (OPEB) liabilities shall be increased by $1,500,000; (3) any additional resources made available through implementation of personnel cost savings shall be allocated by the City Council as such time that detailed reductions are approved.

These appropriations shall not be implemented nor shall these funds be expended without further and express Council action and shall be further contingent on the City Council determining that budget reductions have been approved and implemented through the reduction in personnel expenditures, approved by the City Council as set forth above, or through other means approved by the City Council that equal or are greater than the authorization to expend the appropriation(s) set forth in this paragraph.”

This is definitely a bold plan that goes much further than any one really anticipated.  It puts complete pressure on the city employees as they are about to start the next round of bargaining for the MOUs.

But the council is not done yet, as they still are likely to have to face 150 employees as they prepare to pass this measure.  It appears, though, that they did not blink last time and are unlikely to do so this time.

—David M. Greenwald reporting