Is everybody happy?

Two weeks ago, Mayor Marie Gilmore kicked off her re-election campaign with a rousing speech touting the many ways in which the Russo/Gilmore administration had improved the City in the last three years.

Oh, wait a minute.

The Mayor actually jump-started her re-election campaign last November with a clambake fundraiser sponsored by the firefighters’ and other public employee unions.  And the speech she gave two weeks ago actually was billed as her “State of the City” address.

It just sounded like a campaign speech.  The only thing missing was the band playing “Happy Days Are Here Again!”

The Mayor’s theme was that, thanks to her and City Manager John Russo, Alameda is a far, far better place today than it was when she was elected and Mr. Russo was hired.  Her history may have been a little shaky – in her version of events, the “global economic meltdown” coincided with her taking office – but her message was clear: the Russo/Gilmore administration had “stabilized” the City and “positioned it for the future.”

If you closed your eyes, you could almost imagine it was Ronald Reagan up there proclaiming “It’s morning in America again.”  And, any minute now, you were expecting the crowd to leap up like delegates at a political convention and burst out chanting, “Four more years! Four more years!”

The Mayor provided a long list of the Russo/Gilmore’s administration’s accomplishments, some of which came as news to the Merry-Go-Round.  For example, we learned that Alameda had been named – for the third year in a row, no less — one of the 100 best “communities for young people” by an organization founded by former Secretary of State Colin Powell.  What’s more, the City garage had received the “very prestigious” – the Mayor’s words – “green certification” from the County of Alameda.

Unfortunately, just as we were reaching for our checkbook to add our $99 to the campaign pot filled with cash from the IAFF Local 689 PAC, Ms. Gilmore started talking about the City’s finances.  Once again, as is the custom at City Hall, she let her penchant for self-congratulation overwhelm any punctiliousness about the facts.

According to the Mayor, the Russo/Gilmore administration has “bolstered our financial reserves” from 22% to 31% since it took over.  (The percentage represents the amount of the “available” balance in the General Fund divided by total expenditures and transfers).  This result, the Mayor proclaimed, was due to “the hard work of a lot of people in this room.”

As it happens, the Mayor got her figures wrong.  The audited financial reports show that the correct numbers are 23.61% and 29.79%, respectively.  But only somebody who reads the Comprehensive Annual Financial Reports (CAFRs) will know that.  And such a large increase in such a short time is still worth bragging about, isn’t it?

Well, it depends on how you look at it.

The audited financial reports show that the “available” General Fund balance increased by $4.9 million over the two years between the end of fiscal year 2010-11 and the end of fiscal year 2012-13.  But it turns out that only a fraction of this increase can be attributed even arguably to the executive expertise of the Russo/Gilmore administration.

When the General Fund turns an operating “profit” – i.e., revenues exceed expenses – it’s fair for the politicians and staff to crow about their managerial skills.  But of the $4.9 million increase in the “available” General Fund balance over the last two fiscal years, only $796,020 came from operating profits.

(This total is less than the operating profit — $1,047,769 — earned in the immediately preceding fiscal year, which encompassed the last half year of the tenure of Mayor Beverly Johnson and Interim City Manager Ann Marie Gallant.  But you really didn’t expect Ms. Gilmore to praise those two, did you?)

In response to a request from the Merry-Go-Round, City Finance Director Fred Marsh awhile ago provided a spreadsheet showing the other elements of what he then projected would be a $5.9 million increase in reserves between June 30, 2011 and June 30, 2013.  These items included a $1 million “advance” from Alameda Municipal Power; application of citizen donations to the animal shelter and senior center totaling $231,899 and $259,226, respectively, and $112,511 in unrealized gains in the City’s investment portfolio.  Maybe the Mayor can tie these items to tight-fisted management; we can’t.

The rest of the increase in reserves appeared – to us, at least – to come from paper transactions between the General Fund and other governmental funds (the lay term, we believe, is “shuffling money”) and accounting entries.  This reflects financial rather than operational acumen.  So take a step back, Mr. Russo.  Front and center, please, Mr. Marsh.

The really disappointing aspect of the Mayor’s speech was not so much how she exaggerated her achievements.  It was how she – almost willfully – minimized the City’s problems.

Let’s start with “OPEB.”  The recently released CAFR reports that, as of January 1, 2013, the City had $91.2 million in “unfunded liabilities” for health benefits to be provided to retired employees in the future.  “Unfunded liabilities” represent the difference between the amount owed and the amount set aside to pay for it.

The Mayor failed to mention either this total or the $15.3 million growth in unfunded liabilities for OPEB since January 2009.  She conceded only that, “We still have our OPEB benefits out there, and, just generally, controlling costs.”  Nevertheless, she insisted, “We’ve made great progress.”

And what was that?  According to the Mayor, she and Council had “taken steps to confront long-term liabilities” by hiring an investment firm to set up an OPEB “trust fund.”   But she left out that the initial contribution to the “trust fund” would be all of $250,000 —  i.e., about one-quarter of 1% of the total unfunded liabilities.  That sum won’t even cover the salary and benefits of another fire captain.

Pensions, too, got short shrift.  The most recent CAFR discloses that, as of June 30, 2012, the unfunded liability for the public safety pension plan was $85,728,554 and for the “miscellaneous” plan it was $25,206,659.  Since the Mayor took office, the City’s required annual contribution for public employee pensions has risen by $1.5 million, and more increases mandated by CalPERS are on the way.

The Mayor’s speech omitted these figures, too.  Instead, as she has in the past, she praised the public safety unions for agreeing to a 1% per year hike in the employee pension contribution rate for four years beginning on July 1, 2013.  This, she claimed, was more than the City could “impose” on the unions – which is true but hardly praiseworthy or even noteworthy, since under the new state pension law a city can’t impose any cost-sharing on its employees until January 1, 2018.

Perhaps we’ve been watching “State of the Union” addresses for too long.  To be sure, those speeches usually recite the administration’s achievements.  But typically they are also chockfull of proposals for solutions to the nation’s problems. Indeed, Bill Clinton used to be criticized for devoting too much time to policy and not enough to rhetoric.

Our Mayor is cut from a different cloth.  To hear her tell it, Alameda is a West Coast version of Lake Wobegon, where “all the women are strong, all the men are good looking, and all the children are above average.”  There are no challenges to confront, no choices to make.  Instead, “as long as we realize that we all love Alameda and want what is best for our city — after all, we’re all neighbors, friends, family, and we all want what is best  — and as long as we keep that in the forefront of our minds, I think Alameda has a very, very bright future.”

Since the Mayor is a shoo-in for re-election, Alamedans can look forward to four more years of this kind of “feel good” approach.  Buckle up.


FY 2012-13 audited financial report: 2013 CAFR

Fred Marsh analysis of General Fund reserve balance: Available Fund Balance Changes FY 10-11 through 12-13

About Robert Sullwold

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

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