(An edited version of this article was published in the Alameda Sun November 21, 2013)
Remember how, back in July, City Council agreed to establish a “trust fund” to begin paying down the City’s unfunded liability for retiree health benefits but couldn’t figure out where to get money to put into the trust?
“We just can’t overnight do this trust fund and fund it adequately,” Vice Mayor Marilyn Ezzy Ashcraft said at the time. “We just can’t. But anything we put in is going to help and the more the better. So when we find these windfalls, if that’s the correct term, I just would really encourage thinking of putting it there and helping it grow that trust fund.”
Now, thanks to the superior management skills of City staff, the first of the “windfalls” the Vice Mayor was hoping for appears to have materialized.
According to the op-ed by Assistant City Manager Liz Warmerdam on these pages and a report presented to Council on November 5, staff managed to turn an expected $1.3 million loss for fiscal year 2012-13 into a $500,000 profit – the difference between $71.9 million in revenues and $71.4 million in expenses. Taking in more money than you spent when you expected to do just the opposite indeed could be considered a “windfall,” however the Vice Mayor defines the term.
Following Ms. Ashcraft’s admonition, the $500,000 can go right into the trust fund (which, we assume, staff already has established).
True, even a half a million may not make much of a dent in an unfunded liability that had reached $86.4 million by January 2011 and is continuing to rise. (“Unfunded liability” refers to the difference between what it will cost the City to provide retiree health benefits in the future and what it has set aside to pay for them – which, in Alameda’s case, is zero). But Finance Director Fred Marsh told Council last July that contributing just $100,000 to the trust fund would be a “good starting point.” It turns out we can do five times better.
Time to make out the first deposit slip! Maybe we can even have a ceremony at City Hall at which the City Manager hands the Mayor (or Vice Mayor) one of those oversized checks.
There’s just one problem: Whether they realize it or not, Council already has agreed to devote the profit for FY 2012-13 to covering the shortfall budgeted for the following two years.
Go back to June when staff presented the FY 2013-14 and FY 2014-15 budgets to Council. At that time, with only a few weeks left in the current fiscal year, staff knew that FY 2012-13 results would beat the budget and the City would make a profit rather than incur a loss. So staff took the difference between the estimated profit and the budgeted loss, called it “projected budget savings,” and “carried it over” to the next two years.
The “carryover” then was used to camouflage two years worth of deficit spending. Expenses are budgeted to exceed revenues by $700,000 in FY 2013-14 and by $1.8 million in FY 2014-15 – a total of $2.5 million. But the budget prepared by staff treats the “budget carryover from FY 2012-13” as if it were additional revenue, so the bottom line does not show a deficit in either year. Only through such an artifice were the Mayor and City Manager once again able to proclaim that they had “balanced” the budget.
But no one should be fooled. In reality, this method is nothing more than using this year’s gain to cover the next two years’ losses. The money to make up the shortfalls will come right out of reserves. And the reserve balance at the end of FY 2014-15 will be almost exactly the same as the balance originally budgeted for the end of FY 2012-13.
That isn’t all. When staff prepared the FY 2013-14 and 2014-5 budgets, it assumed that the “carryover” from FY 2012-13 would consist of $1.4 million in realized profit and $1.1 million in avoided loss. But, as the staff report and Ms. Warmerdam’s article show, the profit actually was only $500,000. Unfortunately, we’re stuck with a two-year budget containing spending levels based on the original more optimistic assumption.
So let’s enjoy the $500,000 profit while we can. Maybe we should go ahead and stick it in the trust fund anyway. We can then ask staff to go back and see if they can balance the budget by eschewing financial legerdemain and simply making sure expenses match revenue. If they succeed, we won’t even begrudge them another self-laudatory press release.
FY 2013-14 & FY 2014-15 budgets: 2013-06-11 staff report re FY 2013-14 & FY 2014-15 budget; 2013-06-11 FY 2013-4 & FY 2014-15 budget summary
FY 2012-13 results: 2013-11-05 staff report re 4Q 2012 financials