Report card for the Mayor – Part I

School’s out, the baseball season is half over, and Council is about to take its August recess – so the Merry-Go-Round decided it’s time to offer a performance review of Mayor Trish Spencer’s first six months in office.

Don’t worry, we’re not going to waste space dis-secting Ms. Spencer’s off-the-cuff remarks on ceremonial occasions or her off-the-record banter at coffee klatches.  If you’re interested in that sort of twaddle, you know where you can go.

Instead, we intend to focus on Ms. Spencer’s job performance in two areas:  the City’s finances and development.  Today we’ll talk about finances; tomorrow, development.

During the campaign, Ms. Spencer waved around a copy of the latest dismal forecast for the General Fund and promised that, when it came to managing expenses, “everything will be on the table” if she was elected.  For a while, it looked like she would make good on her promise.  Ms. Spencer:

  • Voted against seeking a joint bid to build a new Emergency Operations Center and fire station no. 3, a project that will end up costing the City, all told, about $14.5 million;
  • Voted against new public safety union contracts that, by staff’s estimate, will increase General Fund salary and benefit expenses by between $6.25 million and $9.8 million over next five fiscal years.

From a fiscal perspective, both of these votes made eminent sense.

The first “No” vote was justified because the EOC/fire station no. 3 project authorized by the former Council was a waste of public funds.

We’ve never heard anyone seriously question the need for upgrading the existing EOC or replacing the current fire station no. 3.  But neither, during the Russo/Gilmore years, did we ever hear any elected official explain, much less defend, how a project estimated in 2012 to cost $4.5 million was now going to run up $8 million in construction costs alone.  (The total tab of $14.5 million includes architectural and engineering fees and debt service).

For the former Council, cost was simply not a concern.

Gilmore, Chen & Tam with IAFF honchos

The IAFF Local 689 team

The majority of its members – Mayor Marie Gilmore, Councilwoman Lena Tam, and Councilman Stewart Chen, D.C. – owed their seats in no small part to the firefighters’ union, which had been agitating for a new EOC and fire station for years.  Loyal to their backers, the IAFF Local 689 teammates on Council had no incentive to scrutinize the plans for which the City paid nearly a million dollars.

And so what had been proposed as a single building combining the functions of an EOC and a fire station morphed into two new free-standing structures:  a two-story, 3,640 square-foot EOC containing a “primary meeting space” for up to 50 emergency responders, a “Disaster Preparedness Office,” a “secondary” communications and conference room, and an “independent” equipment room; and a two-story, 9,252 square-foot fire station providing space for a fire engine, fire truck, and ambulance, and supplying living quarters for eight full-time firefighters.

Who cared that the City didn’t have money available to pay for these extravagant edifices?  Not the former Council majority, who readily accepted staff’s suggestion to finance the project by first tapping funds reserved for capital improvements, then getting the rest by re-financing outstanding bonds, using “unspent” bond proceeds, and borrowing from the State Infrastructure Bank.  Of course, the debt service on the bonds and loan had to come from somewhere – and it did:  the General Fund, from which the City would draw around $600,000 per year for 20 years to pay off the refinanced bonds and the I-Bank loan.

The only way for the new Council to prevent this ongoing hit to the General Fund was to refuse to send the project out to bid.  And that was how Ms. Spencer voted.

The Mayor’s vote against the public safety union contracts was equally justified, because those contracts were a bad deal for the City.

A Council member didn’t have to be a C.P.A. like City Treasurer Kevin Kearney to recognize this fact.  All she had to do was to look at two tables in the package prepared by staff.

The first table showed the cost to the City in increased salary and benefits resulting from the new contracts over the five years ending in Fiscal Year 2019-20:  $6.25 million if the minimum raise is paid, $9.8 million if the maximum raise is paid.

Salary-Benefit Increases

The second table showed the “savings” to the City over the same five years in lower annual payments for retiree health care (aka OPEB) resulting from the establishment of the “OPEB trust”:  a total of $441,000.  (Actually, since the table is done on a calendar-year basis, the staff report uses an even lower number for the savings through FY 2019-20:  $272,000).

30-year OPEB projections

Over the life of the contracts, the City thus would shell out $6.25 million to $9.8 million in increased salary and benefits and get only $272,000 in reduced retiree health costs in return.  Some deal.  And let’s not forget:  to establish the OPEB trust, the City would have to pay $5 million upfront, and $250,000 per year – another charge to the General Fund – for 10 years.

No, we’re not forgetting the $47 million that City Manager John Russo and the contracts’ advocates on Council bandied about as the total cost savings over 30 years.  (It’s the number at the bottom of the “annual savings” column in the second table).

The problem is, the $47 million estimate depends on two highly questionable assumptions:  first, that the funds contributed to the trust – by the City and by the workers – will earn a 6.25% annual return (the current rate on 30-year Treasuries is 2.5%), and, second and most importantly, that the public safety employees will continue making annual contributions to the trust at the same rates even after the contracts expire in December 2021, even after the trust runs out of money in 2035, and, indeed, all the way through 2045.

The MOUs impose no such continuing obligation.  Instead, after the contributions from the City stop, “it is agreed that the City and Safety members will meet to evaluate the performance of the Trust, and contributions of the City and safety members thereafter will be mutually agreed to, if any.”  IAFF Local 689 president Jeff Del Bono may have given “my word,” on behalf of “my guys and gals out there,” that “we’re partners,” but unless the guys and gals anoint him president-for-life, he can’t make financial commitments binding on his successors.  And, as Captain Del Bono himself is wont to remind us, every new contract negotiation starts from scratch, and any “concessions” must be bargained anew.

For Ms. Spencer, the decision was “simpler than everything we’ve heard tonight.”  With a series of accelerating operating deficits already on the horizon, it made no sense to incur the additional costs imposed by the new contracts.  So she voted, No.

But then a strange thing happened.  Having made these fiscally prudent votes, Ms. Spencer:

  • Voted for issuing an $8 million contract to build the new EOC and fire station; for borrowing $3 million from the I-Bank, and for “appropriating” $900,000 in “unspent” bond proceeds; and
  • Voted to approve a two-year budget and five-year forecast sanctioning annual General Fund operating deficits totaling $13.7 million through Fiscal Year 2019-20.
EOC first floor cropped

The new EOC (first floor)

EOC second floor cropped

The new EOC (second floor)

The Mayor never publicly explained the reason for her switcheroo on the new EOC and fire station.  Indeed, if one was listening to her cross-examine City Finance Director Elena Adair and Fire Chief Doug Long at the May 19 Council meeting, one would have marked her down as a likely “No.”  But then she voted to go ahead with the project anyway.  We still can’t figure out why – unless . . .

The day after Ms. Spencer opposed sending the new EOC and fire station out for bids, the firefighters’ union issued a press release denouncing her for abrogating her “duty” to “protect the citizens of Alameda.” “I cannot understand as to why she would be against this project,” the release quoted IAFF Local 689 president DelBono as saying.  “Her action of voting against the replacement of Fire Station 3 demonstrates a lack of regard for the          safety of our community.”

Firestation 3 floor plans

The new fire station no. 3

And then, two weeks after Ms. Spencer had persisted in defying the firefighters’ union by voting against the public safety union contracts, Captain DelBono followed up his previous tongue-lashing with a letter (released, of course, to the news media) admonishing the Mayor about her proper role.  “Government is experiencing a nationwide struggle with community relationships and a lack of trust between citizens and their Public Safety Officers,” the union honcho lectured Ms. Spencer.  “Here in Alameda we have worked hard to build trust.  As mayor, you should continue to build on that trust because that is what leaders do.”

Was the Mayor intimidated by the March 4 press release and the May 12 letter?   We don’t know.  We surely hope not.  But it just so happens that, a week after the letter, she voted to give the firefighters’ union the new EOC and fire station it wanted.  (If Captain Del Bono expressed his thanks to Ms. Spencer for finally seeing it his way, he did so privately; we saw no congratulatory press release following the vote).

Then came the meeting to consider the General Fund budget.

Throughout the budget process, Ms. Spencer showed that she was keenly aware of the forecast for increasing operating deficits from FY 2016-17 through FY 2019-20.  But she didn’t seem willing to do anything about them.  The Mayor was as quick as her colleagues to reject staff’s suggestions for $1.2 million in cost savings over the next two years.  Indeed, she sounded a lot like Mayor Gilmore when she decried cutting back on services like an ambulance for Bay Farm Island and two school resource officers for the high schools – even though those moves would save the City $768,000 over two years.

Ms. Spencer also was ready to join her colleagues in endorsing staff’s proposals that would increase expenses as a result of hiring new full-time employees.  The City should not seek to limit costs through the use of part-time workers, the Mayor said.  That practice made Alameda no different than the classic bête noir of organized labor, Walmart – which was “not the type of employer we want to be.”  Later on, Ms. Spencer explained that she supported the proposed budget because it would “correct departments that truly have been left behind.”  It seemed as if the Mayor had decided that if her detractors were going to brand her a conservative anyway, at least she could claim to be a compassionate one.

Based on her performance in her first six months, it’s thus hard to evaluate the depth of Mayor Spencer’s dedication to fiscal restraint.  But there are two looming issues that may illuminate the matter.

The first involves – naturally – the fire department.  Since 2010, the City has been paying the salary and benefits of six firefighters with funds provided by a federal “SAFER” grant.  But the funds ran out in February, and the grant has not yet been renewed (although it has been applied for).  If the feds don’t come through, Council will need to decide whether it will bow to the fire department’s (and firefighters’ union’s) insistence that staffing must remain at its current level, which would require either putting the six firefighters on the City payroll or paying overtime to existing personnel.

The time thus finally would arrive to address the topic the former Council assiduously avoided:  Does Alameda really need 98 sworn personnel, 21 of whom hold the rank of captain, to provide fire services?  During the budget process, the Mayor (as well as Vice Mayor Frank Matarrese) suggested this was a question worth asking.  Ms. Spencer can show her true fiscal colors by making sure it gets posed again – and insisting on an answer.

The second issue involves the “surplus” in the General Fund.  Staff predicts that the General Fund balance will be $30.8 million at the end of FY 2015-16, more than enough to comply with the City’s so-called “reserve” policy.  During the budget process, Council members, including Ms. Spencer, threw out various ideas about what to do with the excess.  A tightwad like that well-known Republican, Governor Jerry Brown, undoubtedly would recommend socking away money in a “rainy day” fund.  But our own Council members seem eager to spend the cash on what Vice Mayor Matarrese somewhat inartfully calls “non-operational items.”  (We think he means capital improvements).

Interim City Manager Liz Warmerdam told us she expects to present staff’s recommendations in September about what to do with the “excess” in the General Fund.  When she does, Ms. Spencer will get another chance to show how frugal she truly is.

To hear some of our more enlightened citizens tell it, none of this will matter, since the City’s revenues will swell with the taxes generated by development and its expenses will decline as the full effects of Obamacare kick in.  But for those who voted for Ms. Spencer because they believed she was committed to the “prudent person” standard for managing the City’s financial affairs, the rest of the year will be interesting.


New EOC/fire station no. 3: 2015-03-02 staff report re FS-3 bids2015-05-19 staff report re FS3 construction contract

New public safety contracts: 2015-04-29 staff report re IAFF contracts2015-04-29 Ex. 3 to staff report – MOU between the City of Alameda and the IAFF

FY 2015-16 & 2016-17 budget: 2015-06-02 staff report2015-06-02 Ex. 1 to staff report – FY 2015-16 and 2016-17 Budget Transmittal letter2015-06-02 Ex. 2 to staff report – City of Alameda Budget Summary, General Fund and All Other Funds

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
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6 Responses to Report card for the Mayor – Part I

  1. Nancy Hird says:

    Can you elaborate on how Obamacare will reduce city expenses? I am surely overlooking the connection.

  2. Denise Lai says:

    “We’ve never heard anyone seriously question the need for upgrading the existing EOC or replacing the current fire station no. 3.” Really? I have very seriously questioned both, in writing, repeatedly, and to city council at meetings. I have spoken out against replacing Fire Station 3 for absolute years and years. And you don’t remember the highly successful 2012 campaign “No on Measure C” that was exactly speaking out against FS3 and the new EOC, parsing the Gilmore & Co pro-C marketing against the facts:

    No on C infographics:

    We do desperately need an EOC that will function in real-time, at the very moment disaster strikes, and not maybe the next day or never: the current ECO requires someone to take it out of a closet & then have tech staff brought in to set up, you know, tech staff who may not be available due to, uh, the disaster, and so may never be set up for use during a disaster. So voting for the EOC makes sense. And thanks to the IAFF Local 689 candidates, Gilmore & Company, the plan to getting an EOC soonest possible includes replacing Fire Station 3 when FS3 is nothing more than a boondoggle.

    BTW, you may wish to add the ongoing, substantive, and annual cost to staff the new and unnecessary and redundant fire station with equally unnecessary/redundant (and likely overpaid) fire staff for ever.

    • Denise,

      You’re right: a lot of people did oppose the version of the new EOC/fire station no. 3 proposed as part of Measure C. But I recall the argument focusing more on cost than on need. Sure, the existing facilities were inadequate, but there were less expensive ways to fix the problem than the one the Russo/Gilmore administration was proposing. (As I’ve previously written, even John Knox White later expressed a similar view). And if $4.5 million was too much to spend for that purpose, surely $14.5 million is grossly excessive.

      You also make a good point about operating costs. The original RFP for the fire station contemplated a “single company house” with one fire engine. The new building has room for an engine, a truck, an ambulance, and two full companies. Unfortunately, but not surprisingly, I haven’t found an estimate for the total equipment and personnel costs for the new fire station in the public record.

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