Suppose you were running a business and, when you closed the books for the fiscal year on June 30, 2014, you found out that you’d turned a profit of $7.4 million even though you had projected you’d sustain a loss.
What would you do with the money?
Well, if you were anticipating annual multi-million dollar losses every year for the next four years, you might be inclined to stick the whole $7.4 million in the bank to cover future deficits. Or maybe if you were facing $91 million in unfunded liabilities for future retiree health benefits, you might decide to use the profit to make a dent in the debt.
But that’s not the way the City of Alameda does things.
Instead, in the second of its post-2 a.m. decisions last Wednesday, the outgoing Council voted – without having sought or received any input from the taxpayers – to spend $5.8 million of last year’s profit this year on items that the Russo/Gilmore administration deemed necessary (or important), even though they weren’t included in the previously approved budget. After all this spending is done, only $1.6 million of the profit will be left to go into “reserves” to apply toward expected future losses or unfunded future liabilities.
The last half hour of the Council meeting that began on December 2 is worth watching for its educational as well as its entertainment value.
The final item on the agenda was amending the budget for fiscal year 2014-15 to reflect the financial results for FY 2013-14 (which ended on June 30, 2014). The budget adopted in June 2013 projected that General Fund revenues would fall short of expenses by $1 million in FY 2013-14. But Assistant City Manager Liz Warmerdam and Interim Finance Director Juelle-Ann Boyer had good news for Council:
- In fact, revenues exceeded expenses by $7.4 million in FY 2013-14. (Outside the governmental world, that’s called “profit”). This would result in an increase in the unrestricted General Fund balance from $21.2 million as of June 30, 2013 to $28.6 million as of June 30, 2014.
- Ms. Warmerdam attributed $5.5 million of the budget-beating performance to what she called “one-time sources”: $1.3 million in pass-throughs from the former Redevelopment Agency; $500,000 in transfer taxes from the sale of two apartment complexes, and $3.7 million in “salary savings,” primarily from unfilled vacancies in the police department. (“One-time” means staff has no reason to believe these events will occur again in the future).
- The rest of the positive variance, Ms. Warmerdam said, resulted from the impact of an “improving economy” on City revenues like property and sales taxes.
Having received this news, those on the dais could barely contain themselves. “I just wanted to commend staff for their skilled economic acumen in getting us to this point and getting us to be able even to talk about allocation of surplus,” began Councilwoman Lena Tam. Never mind that not even staff was so bold as to claim credit for the economic recovery that underlay the positive results. (That’s due to President Obama, right?)
Before she could finish, Councilman Tony Daysog interrupted: “Commend staff???” he shouted. “Commend the Mayor!!!”
Ms. Tam nodded in agreement, “Commend the Mayor, absolutely.” Ms. Gilmore then launched into remarks acknowledging the “team effort” that produced a “surplus” in the last fiscal year. “I just wanted to say congratulations to everybody,” she concluded. “We all owe ourselves a pat on the back.”
Then it was time to do the real work.
If Council voted simply to retain the $7.4 million profit in the General Fund, the resulting $28.6 million balance would exceed the set-aside mandated by previous Councils – reserves equal to 20% of budgeted expenditures – by $12.7 million. These “excess reserves” truly would constitute a “rainy day” fund for expected future deficits – or a down payment on unfunded future liabilities.
Maybe someone raised in a union household in the Midwest would have favored this approach. But the proprietor of the Merry-Go-Round doesn’t have a seat on Council, and “Citizen Jim” Oddie won’t begin his term until December 16.
Instead, as staff posed the issue, Council had the opportunity to “allocate” – i.e., spend or save – not just the FY 2013-14 profit but the entire amount by which the unrestricted General Fund balance as of June 30, 2014 would exceed the 20% mandate.
So spend they did:
- $1.3 million for “work force changes, including increased staffing and negotiated wage increases”;
- $250,000 for “emergency training and supplies”;
- $2,362,770 in transfers to internal service funds (selected by staff), including $745,667 to the equipment and vehicle replacement fund;
- $1.8 million to pay for previously unfunded capital improvement projects (selected by staff);
- $100,000 for “materials, equipment, and training” at the library.
If all of this spending was counted against the unrestricted General Fund balance as of June 30, 2014, the balance would be reduced from $28.6 million to $22.8 million – i.e., only $1.6 million higher than it was on June 30, 2013. This difference simply covers the year-to-year increase in the 20% mandate made necessary by higher budgeted expenditures. The “excess” reserves – i.e., the amount by which the balance exceeds the mandate – would be almost exactly the same ($6.9 million) as it was when the last fiscal year ended.
(If you read the staff report and listen to the Council discussion, you might be fooled into thinking that Council had taken major steps to deal with expected future deficits and unfunded future liabilities. Maybe some of those on the dais actually believed that had happened. But the bottom-line numbers tell the real story: Council could have made significant progress toward protecting the municipal fisc had they voted to retain the FY 2013-14 profit in the General Fund. Instead, they ended up spending most of it.)
Let’s take a look at the spending list.
To us, the three most intriguing items for which FY 2013-14 profits will be used this year are “work force changes,” “emergency training and supplies,” and transfer to the “equipment and vehicle replacement fund.”
“Work force changes” is a $1.3 million expense. When we inquired, Ms. Warmerdam explained that this item comprised two parts: the cost for adding three new employees to City staff – and the additional costs (beyond those already budgeted) for giving salary increases to all unionized City employees.
The three new City jobs are a “resiliency officer,” a “public information officer,” and a senior human resources analyst. You may have missed it – we did – but the resolution creating the first two positions was part of the consent calendar passed by Council on November 18.
A “resiliency officer” may sound an awful lot like the “Chief Resilience Officer” job for which the City unsuccessfully sought $630,000 from the Rockefeller Foundation to fill with a fire division chief for two years. After Assistant City Manager Alex Nguyen issued a press release announcing that the Foundation had revoked the grant, a citizen asked whether the City still planned to hire a Chief Resilience Officer. Mr. Nguyen’s one-word reply: No.
Apparently, the position created in November is a different job. The role of the “resiliency officer” – whose official title is “Community Development and Resiliency Coordinator” – is to “engage the community-at-large, including businesses, schools, faith community, non-profits, home owners’ associations, etc. to plan for resiliency.” Salary and benefits for the new position will cost the City $97,000, half of it paid from the General Fund (and, this year, out of the FY 2013-14 profits).
Similarly, we had thought that, as his involvement with the Rockefeller grant showed, one of Mr. Nguyen’s duties as Assistant City Manager was to serve as the City’s “public information officer.” We know that he does more than write speeches and press releases to earn the $177,440.12 in salary and benefits he was paid in 2012, but flackery seems foremost among his functions.
The “public information officer” position created in November is also apparently a different job. The successful applicant will report to the City Manager and command a salary between $86,840 and $105,554. Her role will be to “bring the sophistication necessary to successfully utilize current and cutting-edge communication trends and practices to manage the City’s public communications activities.” The salary and benefits for the new position will be paid from the General Fund (and, this year, out of the FY 2013-14 profits).
So much for the new positions. The need to use last year’s profits to pay this year’s salary increases arose, Ms. Warmerdam explained, because the City’s unionized employees will get a 4.1% pay raise beginning January 1, 2015 rather than the 1.8% raise provided in the original FY 2014-15 budget. (This is on top of a 1.8% raise that took effect on January 1, 2014).
We hasten to add that the Russo/Gilmore administration did not pick the 4.1% figure out of the air. Rather, the most recent contracts between the City and its employee unions contain a section providing for annual pay raises computed using what the contracts call the “Balanced Revenue Increase.” Under this provision, the pay hike is equal to half the percentage by which a combination of five specified local taxes grew in the preceding year.
Of especial note, the formula does not take account of the reasons for the growth in revenue. So the “one-time” increases experienced in FY 2013-14 get built into the calculation used to determine this year’s raises even though they’re not expected to happen again.
The second item that leapt out at us in the spending list was the $250,000 of FY 2013-14 profits to be spent this year for “emergency preparedness, training and supplies.” The new state-of-the-art Emergency Operations Center will cost the City around $4 million (including debt service), but the construction budget apparently didn’t include “training and supplies.” According to the staff report for the December 2 meeting, “In light of lessons learned in the Napa earthquake and the current emphasis on resiliency, training and supplies are critical to ensuring a thorough and timely response after an emergency.” So let’s buy ‘em now even though we have no place to put ‘em!
As it happens, this item also caught the eye of Vice Mayor Marilyn Ezzy Ashcraft, who seemed almost, well, embarrassed to bring it up. She was “wondering,” Ms. Ashcraft said, whether “it might be a little premature at the time to allocate this budget to the EOC.” She hastened to add: “ I’m not suggesting we don’t give them anything, just everyone have a little more time to figure out with a little more certainty what is needed.”
Public Works Director Bob Haun made short shrift of the Vice Mayor’s concern. The money would go for paying a third-party vendor to provide in-house or off-site training for the entire fire department – all of whose members, Mr. Hahn suggested, are “assigned” to the EOC – and for buying a communications software program and laptops to run it on. In response, Ms. Ashcraft protested, meekly, that she would have liked to have seen those details in the staff report. “The public deserves to be informed via public staff report where we’re spending parts of millions of dollars,” she said. But she then ended up voting for the allocation that included the money for the EOC anyway.
Next, the “transfers to internal service funds.” As we learned from former City Finance Director Fred Marsh, the City sets up a number of accounts separate from the General Fund to pay for identified expenses. “Special revenue funds” get their money from fees charged for services provided. (Think of the sports field fees that go into the Recreation Fund). “Internal service funds” get their money from transfers from the General Fund. Staff proposed to augment the balances in four specific internal service funds by sending them $2.36 million of last year’s General Fund profit.
The fortunate beneficiaries were the technology services, compensated absences, workers compensation insurance, and equipment and vehicle replacement funds. Why did staff choose these particular internal service funds, from among all the others, to get an injection of additional cash? The staff report and the staff presentation didn’t say, and we have no clue about why the first three got lucky. But we do know something about the last one.
The “equipment and vehicle replacement fund” – slated for a $745,667 transfer – is the source of the money used to buy new cop cars and fire department “staff vehicles” and to pay debt service on bigger-ticket items like fire engines, trucks, and ambulances. Although the list of new equipment purchased by the Russo/Gilmore administration for the police and fire departments in the last four years is a long one, the equipment and vehicle replacement fund still ended FY 2013-14 with a balance of $3.78 million. Thanks to Council’s decision, there’ll be another three-quarter million dollars available to keep the latest-model vehicles coming to the City’s police and fire stations this year.
(It might be tempting to conclude that Mayor Gilmore, Councilwoman Tam, and Councilman Stewart Chen, D.C., arranged a little going-away gift for their IAFF Local 689 friends when they passed a resolution “allocating” the FY 2013-14 profit to, among other things, salary increases, more goodies for the EOC, and bigger bucks for new equipment. But that would be too cynical – wouldn’t it?)
The penultimate item on the spending list – increasing funding for capital improvements – remains puzzling to us for much the same reason as the transfer item. (The $100,000 for the library can be seen as a sop to the Vice Mayor’s favorite cause).
The capital improvement budget passed in June 2013 provided funding for $21.43 million in capital improvement projects in FY 2014-15. That still left a whopping $176.33 million in “unfunded” projects – i.e., otherwise worthy projects for which there was no money available. By passing the resolution allocating the FY 2013-14 profit, Council moved $1.8 million from the “unfunded” to the “funded” column.
But what exactly are the projects this money will pay for? The staff report says only that, “staff is proposing to fund ADA upgrades for park facilities, irrigation improvements at fields, repairs of pedestrian, sidewalk and bike trails at parks, facility corrections and maintenance, and general sidewalk repairs.”
And why did staff decide to get this work, among the dozens of other projects on the “unfunded” list, done this year? Staff didn’t say – and no one asked. Even Ms. Ashcraft, who had pressed for further details on the EOC spending, let this one go. After all, it was after 2 a.m.
But, to us, the point the Vice Mayor made, so softly and politely, in her earlier comments is worth repeating, in bold and italics: “The public deserves to be informed via public staff report where we’re spending parts of millions of dollars.” Maybe she’d even agree that the public “deserves” not just to be “informed,” but “consulted,” about spending decisions.
That’s hard to do if Council and staff don’t lay out for the public in detail how they propose to spend City funds – and then don’t start discussing their proposals until Council chambers are nearly empty, as they were Wednesday morning (except for Kurt Peterson, whose unarguable observation that use of technology can reduce personnel costs was treated by the Mayor as if it were an attack on municipal employees).
We’ll take it one step further. Years ago, there was a newspaper cartoon called, “There Oughta Be a Law.” The Merry-Go-Round invites all Jimmy Hatlo-wannabes in Alameda to apply for our new position – we’re still looking for grant money to pay for it – as staff cartoonist. First assignment: There Oughta Be A Law That, Once The Clock Strikes Midnight, Council Can’t Vote To Spend Even One Dime of the Taxpayers’ Money.
Capital improvement budget: 2013-06-11 Ex. 2 to staff report – CIP budget
4Q 2014 financial report: 2014-11-18 staff report re 4Q financial report; 2014-11-18 Ex. 1 to staff report – 4Q Financial Report
New City jobs: 2014-11-18 staff report re PIO position