Public Scrutiny Is Not an Annoyance

Originally published in the Alameda Sun May 23, 2013

City officials never have relished public participation in the budget-making process.  Mayor Marie Gilmore often mocks the lack of attendance at budget workshops – this year, she didn’t even show up herself – and those citizens who venture to speak get to hear City Manager John Russo denounce their comments as “fantasies” and “shibboleths.”

With this year’s budget, the politicians’ disdain has reached new levels.  City officials calendared for May 28 a “special” meeting at which Council will be asked to pass a budget covering the next two fiscal years.  The timing gives the public all of seven days – three of them falling on the Memorial Day weekend – to review a lengthy staff report.  Think fast, sports fans.

But that isn’t all.  This year, one citizen who actually knows something about business plans asked the City to provide a copy of the budget in an Excel spreadsheet  format suitable for analysis.  The Sunshine Ordinance explicitly supports this request.  But City Attorney Janet Kern refused.  Releasing the budget in this format, she insisted, “would jeopardize or compromise the security or integrity of the original record or of any proprietary software in which it is maintained.”

Say what? We’re talking about an Excel spreadsheet!

One wonders whether Kern’s decision – if indeed it was hers – was influenced by the identity of the requester, who was one of the critical voices at the budget workshop.  So get out your calculator, Joe.

The temptation to conclude that City officials regard public scrutiny on financial matters as an annoyance is unavoidable.  Instead, they prefer the process employed to get the public safety union contracts passed:  special meeting, self-congratulatory staff presentation, inadequately informed public.  Through this route contracts adding $2.6 million to the deficit over four years sailed under the radar – and through the Council.

But let’s be charitable.  Maybe the City Manager is confident that Alamedans are such quick studies that they’ll be able to spot any issues on the fly.  If so, he probably won’t mind if we flag a few items from the April 18 staff presentation – the only one available before the Sun’s deadline –  about which we’d like to hear more from City officials.

At the outset, staff estimated that the general fund will incur deficits of $2.7 million in FY 2013-14 and $4.4 million in FY 2014-15.  The draft budget is supposed to “close the gap.”  But how?

Start with expenses.  The draft budget leaves the police and fire departments virtually untouched.  According to staff, police and fire account for $51 million – 75% – of general fund operating expenses this year.  Yet the draft budget cuts their combined spending by only $180,000 in the next two years.

By agreeing to the SAFER grant and the public safety union contracts, City officials made sure that police and fire wages and benefits escaped the budget scalpel.  But there must be at least few excess branches hiding in the $51 million forest.  Maybe outgoing police chief Mike Noonan and former IAFF local 689 head and current fire chief Mike O’Orazi could be asked why they couldn’t find another dime in savings without compromising public safety.

With police and fire protected, the ax falls on other City services.  For example, the draft budget requires the recreation and park department to reduce staffing and maintenance to save $112,000.  (This is the third year in a row Rec/Park has taken a hit). Likewise, the City will slash general fund contributions for annual maintenance and capital projects by $460,000 next year and $1.491 million the following year.  Maybe rookie recreation and parks director Amy Wooldridge and veteran public works director Matt Naclario could be called upon to share their notes about how to get by with less.

Then there’s revenues.  The politicians talk a lot about property and sales taxes, but in fact the City relies heavily on revenue sources other than taxes to cover expenses.  The largest benefactor is Alameda Municipal Power, which has been subsidizing the general fund by $2.8 million per year even though it is not legally obligated to do so.  AMP also pays another $2 million a year to the City in other fees and charges.  Last year, AMP “advanced” $1 million due in future years for these exactions, and the draft budget counts on even larger prepayments in the next two years.

Unfortunately, AMP may not be flush with dough forever.  Indeed, AMP staff is projecting operating losses beginning this year.  Maybe AMP general manager Girish Balachandran can be invited to comment on how long AMP can afford to keep both itself and the general fund afloat.

We’ll leave the last item for Russo personally.  When he proclaims that the budget is “balanced” for the next two years, look carefully at the line item called, “Use of Carryover of Projected Budget Savings FY 2012-13.”  Without this item, the FY 2014-15 budget would show a $1 million deficit.  With it, the deficit appears to go away.

But where is this money coming from?  From the general fund reserves.  Here’s how it works:  For FY 2012-13, the City projected a $1.2 million deficit, which would have meant drawing down reserves by that amount.  But no drawdown turned out to be necessary.  Which means – hang onto your hat – that $1.2 million can be “carried over” and “used” to cover shortfalls in future years.

Clever indeed.  But the fact remains:  whether the $1.2 million drawdown occurs in FY 2012-13 or in FY 2014-15, it’s still a drawdown and it still reduces the reserve balance by $1.2 million.  The ordinary householder thinks a “balanced” budget means she expects to make enough money to cover her expenses.  Little did she know that she could still call a budget “balanced” even though she will have to dip into her savings to pay her bills.  But John Russo is no ordinary householder.  We eagerly await his latest lesson in municipal economics.

Sources:

April 18, 2013 staff PowerPoint presentation:2013-04-18 Power Point for budget workshop

April 18, 2013 staff 5-year forecast: 2013-04-18 5-year forecast

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, City Council, Firefighters and tagged , , , , , , , . Bookmark the permalink.

6 Responses to Public Scrutiny Is Not an Annoyance

  1. Excellent post. I see your view of local governments is as dark as mine. If you have a spare minute, my blog on the topic can be found at http://www.thelittlepicture.net

  2. Bitter anger much? says:

    Boldly mocking the Mayor for missing a meeting because her husband was hospitalized….yep, that about epitomizes this blogger….shame on you.

  3. No reason was stated at the April 18 budget workshop for Mayor Gilmore’s (or Councilwoman Tam’s) absence. This afternoon, however, Mayor Gilmore called to explain that she had missed the workshop because she was at the hospital attending her gravely ill husband. We wish Mr. Gilmore a successful recovery.

  4. Denise Lai says:

    Excellent research, thinking, and expository. Keep up the good work!

  5. Alameda Guy says:

    Robert. Your observations are solid and have great value to the reader. I noticed that you attended last night’s budget meeting at City Hall. I’ll be interested in your observations.

  6. Girish Balachandran, AMP general manager, sent us an email with the following letter, which was published in the June 6, 2013 Alameda Sun:

    Letter to the Editor/Alameda Sun

    On behalf of Alameda Municipal Power, I would like to clarify remarks about AMP made by Mr. Sullwood in his commentary on the city’s budget issues. (“Public Scrutiny Is Not an Annoyance,” May 23)

    AMP is the City of Alameda’s publicly owned utility and, just like 2,000 other public power utilities across the country, we provide payments and contributions to local government in the form of payments in lieu of taxes (PILOT/ROI) and transfers to the general fund. And we’ve done so for more than 100 years.

    Each year, AMP transfers approximately $4 million to the city, or about 7 percent of our total revenue. This is completely in line with what 2,000 other publicly owned electric utilities transfer to their cities in California and across the country. In fact, publicly owned utilities transfer on average anywhere between 6 and 11 percent of their revenue to their city. AMP is governed by an independent Public Utilities Board and these transfers are approved by the Board.

    Were AMP a private utility, we would be paying property taxes, franchise fees, and business license taxes to the city. We’d also be paying a return to shareholders.

    But here in Alameda, the city owns AMP, and the transfers to the general fund are just one of the ways we provide value to Alamedans, along with electric rates that average 20 percent lower than our neighboring cities, award-winning customer service, and reliability that’s in the top quartile in the nation. Our lower rates translate into an annual savings of approximately $10 million each year for Alamedans.

    The bottom line is this: AMP is financially healthy, and the transfers to the city and expenses related to shared services are well within the limits of a well-run and financially healthy utility. Our external auditors review our books annually and agree. Moreover, AMP’s financial strength has been validated by rating agencies like Fitch’s and Standard & Poor’s, both of which have increased AMP’s rating to A+.

    Perhaps the most important aspect of having a publicly owned utility is that the community has a voice in everything we do. AMP’s meetings are always open to the public and subject to the Sunshine Ordinance, and our budget is discussed openly and provided on our website. This openness is just another way we’ve provided value to our community for 126 years.

    Girish Balachandran, General Manager
    Alameda Municipal Power

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