Wanna see how to make $32 million disappear in just five years?
Then you ought to show up Wednesday at Council Chambers for the budget workshop, and City Finance Director Elena Adair will show you how it’s done.
Or maybe she won’t – but she could if you asked her to.
It’s really very simple: All Council needs to do is to approve staff’s wish list for $10 million-plus worth of new personnel and equipment over the next two fiscal years and then let annual spending keep increasing by about five percent per year during the following three years. Presto chango: The “available” balance in the General Fund will drop from $31,940,047 as of June 30, 2017, to $159,047 as of June 30, 2022.
That’s the message that emerges from the analysis prepared by Ms. Adair for presentation to Council. Today, the Merry-Go-Round will walk our readers through it.
We’ll start with the five-year forecast in the staff presentation:
According to the forecast, the General Fund balance will hit a peak of $35 million at the end of Fiscal Year 2018-19. And then things will start to get ugly.
For the following three years, operating expenses and transfers will exceed revenues by an ever-increasing amount – $4.6 million in FY 2019-20, $7.6 million in FY 2020-21, and $10.8 million in FY 2021-22 – thereby draining $23 million from the General Fund over a three-year period. (The graphically inclined should check out the staff-prepared chart on the right showing where the expense and revenue lines cross.)
As a result, the General Fund balance is projected to fall from its $35 million peak in FY 2018-19 to $12 million in FY 2021-22, less than half of the 25 percent of annual expenses and transfers required by the “reserve policy” established by Council. Moreover, as the slide states, this result expressly excludes the “requests for additional funding” over the next two years proposed by the various City departments.
The staff presentation gives the politicians an easy way to avoid taking responsibility for the debacle that is forecast to begin in FY 2019-20: blame CalPERS, the state agency that manages the City’s pension plans. The employer contribution rate for the safety plan – i.e., what the City pays CalPERS annually for fire and police pensions – is expected to go from 48 percent of payroll in FY 2017-18 to 74 percent in FY 2021-22. For the miscellaneous plan, the employer contribution rate will go from 22 percent to 37 percent over the same period. Overall, the presentation states, annual pension expense is expected to increase from $18.5 million in FY 2017-18 to $32 million in FY 2021-22. (If you really want to get depressed, check out the staff-prepared chart on the right showing the 30-year pension cost projections. BTW, we can’t explain the dropoff at the end).
But this isn’t the whole story. True, the employer contribution rates will increase drastically, and Council can’t control them. But the impact of the rate increases is magnified by the growth of the municipal payroll – and that our elected officials can control. They’re just not willing to do so.
Our readers know the facts. Back in April 2015, by a 3-2 vote, Council approved the new public-safety union contracts guaranteeing minimum annual raises of two percent in 2017 and 2018, three percent in 2020, and two percent in 2021, with a potential upside that could be (and has been) triggered by a one-time increase in revenue in any year. (The contracts expire on December 18, 2021, and one shudders to think how much of a guaranteed raise for the subsequent years a labor-friendly Council will agree to.) Moreover, as we recently noted, Fire Chief Doug Long insists that the fire department now is operating with the bare minimum staffing required to ensure public safety, and very soon it will have 20,000 new residents and workers at Alameda Point and along the northern waterfront to serve. Already, the current Council has approved, by a 3-2 vote, one staffing increase sought by the fire department, and we doubt that will be end of it.
The data reflects how the combination of skyrocketing pension contribution rates and an expanding public-safety payroll will affect the bottom line. The increases in public-safety expenses in FY 2019-20, FY 2020-21, and FY 2021-22 ($4.1 million, $4.0 million, and $4.3 million, respectively) consume all of the additional revenue projected for those years ($932,000, $1.6 million, and $1.7 million, respectively) – and then some. Indeed, by June 30, 2022, 81 cents of every dollar of General Fund revenue received by the City will go to pay fire and police costs.
But, wait a minute, you may say: Doesn’t the five-year forecast show that, despite the accelerating annual deficits, the General Fund still will have a balance of $12 million at the end of the period? Sure – but don’t ignore the qualifier at the bottom of the slide: “Proposed Budget, excludes Departments’ requests for additional funding.” We didn’t, and what we discovered was that, if Council accedes to all of those “requests,” the bottom line for the next two fiscal years will turn from positive to negative, and the General Fund balance will end up close to zero three years later.
So now let’s look at what the departments want to spend money for.
We’ll start – where else? – with the fire department, which wants to buy a new fire engine for $922,000 in FY 2017-18 and a new ambulance for $386,000 in FY 2018-19, and to acquire $386,000 in “other vehicles and radios” over the two-year period. In addition, the department proposes to create a new “division chief/fire marshal” position at an annual cost of $306,000 beginning in FY 2018-19.
According to the staff presentation, the equipment purchases are necessary because one of the fire engines and one of the ambulances currently being used have exceeded their “maximum vehicle life,” and the radios are “outdated” and soon-to-be “obsolete.” (Just as an aside: What happens to the used fire engine and ambulance once the fire department gets its hands on the latest models? Could they be destined, not for eBay, but for another bay – the empty one at the new fire station, where they’ll wait for more firefighters to be hired to put them back into service?) But the rationale for a new upper-level management job is harder to discern.
A new division chief/fire marshal is “needed,” the staff presentation states, “to provide Management and oversite [sic] of the Fire Prevention Bureau (FPB) and Disaster Preparedness Division.” But, as approved by Council in April, the FPB is supposed to be staffed by just five employees – a captain, two firefighters/apparatus operators, and two unsworn employees – and the “Disaster Preparedness Division” has no sworn or unsworn employees other than a captain, whose salary is split with the police department. (When we asked Chief Long whether he intended to hire more “disaster preparedness” personnel, he replied: “As always, we will continue to analyze the effectiveness of our divisions to meet the needs of the community.”) One wonders why a staff of six persons, two of whom already are captains, requires a $306,000-a-year boss.
Nevertheless, we’re confident that the fire department will get everything it asks for, since the IAFF Local 689 team (Vice Mayor Malia Vella, Councilman Jim Oddie, and mayoral wannabe Marilyn Ezzy Ashcraft) can provide the necessary three votes all by themselves. So hit the General Fund with $2 million in additional fire department expense over the next two years.
(Whenever we discuss fire department spending, we have to add our usual caveat that we haven’t forgotten the police department. But Chief Paul Rolleri is not asking to create any new management positions – or, indeed, any additional authorized positions – in the next two years, and the department wants only $250,000 in FY 2017-18 and the same amount in FY 2018-19 to buy the license-plate camera reader it previously has discussed.)
The requests for additional personnel don’t stop with the fire department, however. The recreation and parks department wants to hire a $137,000-a-year park maintenance supervisor and an $89,000-a-year park maintenance worker. (“Comparable municipalities,” the staff presentation states, expect their park employees to maintain only eight acres per worker rather than the 16 acres Alameda demands.) In addition, the City Manager wants to “fill” the “authorized” but “vacant” position of Assistant City Manager, which will cost $320,000 annually in salary and benefits. (According to the staff presentation, “the City Manager’s Office has always had 3 Executive Level Managers” since 1997, and the office is “managing [an] increasing number of referrals.”)
If Council approves these staffing requests, they will add another $1.036 million to General Fund personnel expense over the next two years. In addition, the City Manager wants another $100,000 in FY 2017-18 to pay for “office reconfiguration.”
Next up is information technology. The City even didn’t hire an Information Technology Director until June 2015, and it’s not clear to us how many employees now work in the IT department. (Even more curiously, although the FY 2016-17 General Fund budget shows $1.645 million for IT expenses, the line item disappears in subsequent years.) Nevertheless, the “Departmental requests” listed in the staff presentation include spending money to implement the “recommendations” in an IT “strategic plan.” (When we asked about this, City Manager Jill Keimach told us that staff had performed an “internal study of the City’s technology needs in order to prioritize the budget requests and meter them out so we can be the most cost efficient in the long run.”)
Carrying out those recommendations won’t come cheap: $200,000 in FY 2017-18 and $100,000 in FY 2018-19 for “Citywide WIFI projects,” and $1.5 million in FY 2017-18 and the same amount in the following year for “ERP (HR & Financial System)” and “Electronic Document Mgmt System (EDMS), GIS, Smart Infrastructure, Shared Service Agreements.” Unfortunately, given the lack of public information, we can’t provide any details about these projects; all we can tell you is that, if approved, they will add as much as $3.3 million to the “capital projects/maintenance” line item in the budget for the next two years.
Keep your cursor on that same line and you can include the requests from the public works department, which wants to spend $1 million from the General Fund on “Urgent City Building Repairs” in both FY 2017-18 and 2018-19, and $500,000 in each year to repair one mile of sidewalks. It also proposes to add a streetlight “maintenance and operations” program in FY 2017-18 at a cost of $600,000. The tab for additional public works spending from the General Fund comes to $3.6 million over two years.
So now we’ve got the information we need to update the five-year forecast by including, rather than excluding, the additional spending requested by City departments. The staff presentation didn’t contain a slide, so we’ve created our own with the same format staff used:
So that, dear friends, is how you get from $32 million to zero in just five years.
And, difficult as it may be to believe, this may be an unreasonably rosy forecast, since it doesn’t take account of two items that may result in even more cash flowing out of the General Fund during the next five years. Under the staff-prepared forecast, the General Fund balance will approach zero by June 30, 2022 even if the City doesn’t contribute another dime in the next five years to the trust to be established for the purpose of defraying a portion of future pension and OPEB costs. Similarly, under the staff-prepared forecast, the General Fund will run out of money even if the City doesn’t spend an extra nickel in the next five years to deliver municipal services to the new residential development projects scheduled for completion during that period. If Council decides to tap the General Fund for either of these purposes, the balance will disappear even more quickly.
We are, of course, unable to predict what “direction” the current Council will give to staff Wednesday. In fact, we won’t even offer any odds on how many of those on the dais will have slogged through the five-year forecast or how many will care about its implications even if they understand them. We can just hear the comments now: “Yeah, five years ago, [City Treasurer] Kevin Kennedy was telling us the City was headed toward bankruptcy. [Actually, Mr. Kennedy was commenting, albeit dramatically, on the forecast prepared by then Finance Director Fred Marsh]. But look! The lights are still on!” Having lucked out as the improving economy saved the City from falling into financial ruin, the politicians will be sorely tempted to do nothing of substance this time, either.
We also don’t know whether Mr. Kennedy or his colleague, City Auditor Kevin Kearney, will try yet again to get the Council members to focus on the financial issues, but, even if they do, the members of the IAFF Local 689 team are unlikely to heed their advice. After all, the unions were so eager last November to get rid of these two thorns in their side that they financed campaigns by an unknown financial planner against Mr. Kennedy and by perennial office-seeker Mike McMahon against Mr. Kearney. (Both incumbents won – overwhelmingly.) And our local “progressives” have shown no inclination to worry about such mundane matters as the City’s financial condition.
But maybe Ms. Adair – low-key, well-organized, precise – can get them to pay attention. If the written materials are any indication, she’ll recommend, among other things, that Council should make “only critical hires using General Fund dollars,” and “focus the next two years on reducing expenses and evaluat[ing] future revenues.” We’d urge her to slip into her presentation a demand to impeach Donald Trump. That way, everyone on the dais might actually listen to her – and the public would be better off.
Staff report for May 17 budget workshop: 2017-05-17 staff report – budget workshop
Staff presentation for May 17 budget workshop: 2017-05-17 Presentation
Alternative five-year forecasts: 2017-05-17 Ex. 2 to staff report – General Fund Draft 5-Year Forecast without Additional Funding Requests; 2017-05-17 Ex. 3 to staff report – General Fund Draft 5-Year Forecast with Additional Funding Requests