Last Chance to Weigh In
The South Pasadena City Council is getting ready to officially adopt the $28.6 million Fiscal Year (FY) 2019-2020 budget and is calling for the public to get involved next Wednesday.
City officials have sent out a public notice indicating the June 5 City Council meeting will be a public hearing on the budget as well as the city’s proposed Capital Improvement Plan for FY 2020-24.
The city has set up an email, email@example.com, where residents can weigh in on the city’s fiscal challenges. The hard copy of the budget along with the proposed Capital Improvement Plan for FY 2020-24 is available at the City Clerk’s office, 1414 Mission St.
The balanced budget has to be approved by June 30 as the fiscal year begins July 1. The council has one more meeting scheduled after next Wednesday and that’s on June 19.
The proposed budget still has variables, however, such as labor negotiations and future pension liabilities that are expected to cause a significant budget gap, which some officials have put at more than $1 million. Those issues have not been publicly addressed yet.
“The proposed FY19-20 budget is balanced on paper, but we are still expecting a budget gap due to the labor negotiations now underway with our three employee unions,” said City Manager Stephanie DeWolfe in an earlier email to The Review. “The City pays on average 10-30 percent below other small, comparable cities in our area, which is leading to vacancies in police, fire and other departments. However, we are also examining several revenue options that could balance the budget in the near-term and continue to provide our residents with the quality of service they expect and deserve. Our goal is not just to balance the budget this year. Our goal, and challenge, is to create a financially sustainable infrastructure that anticipates future costs and necessary investments in infrastructure and human resources.”
However, the city also is facing payments to CalPERS that may be higher than anticipated, officials said. Those issues are anticipated to be addressed at the June 5 meeting.
One resident, Chris Bray, who is researching the pension liability issue, explained the challenge.
“While CalPERS is two years behind in their reporting, and the current figures may be far worse, the numbers you’ll see there are beyond alarming,” Bray said in an email to The Review. “South Pasadena’s unfunded accrued liability payments go from $592,637 for fiscal year 17-18 to a projected $2,539,000 for fiscal year 24-25 — they more than quadruple in less than a decade. That’s a path to insolvency.”
Although the CalPERS issue was not addressed at the last council meeting, a CalPERS actuarial report dated August, 2018, indicates So Pas has at least two payments in the 2019-2020 budget. The first is $883,471 for normal payroll percentage contributions and the second is for $1,601,668 in extra payments something identified as “unfunded accrued liability,” for a total of $2,485,139.
So Pas Finance director Craig Koehler explained the CalPERS payments in an email to The Review.
“The CalPERS Actuarial Report dated as of August 2018 is an estimated cost pertaining to just the Safety categorization of the CalPERS pension plan,” Koehler said in the email. “The entire CalPERS pension plan also includes the following categorizations: Miscellaneous, Miscellaneous PEPRA, Safety, and Safety PEPRA. The budget presentation provided during the Council Meeting on May 15th broke down the personnel costs and operations/maintenance of each department. The costs of the CalPERS pension plan are included in the personnel amounts provided in the budget presentation. Here’s the breakdown of the pension costs (Normal Costs + Unfunded Accrued Liability): Safety – $2,474,181; Safety PEPRA – $187,346; Miscellaneous – $1,562,327 and Miscellaneous PEPRA – $174,854.”
That brings the total payment to CalPERS for FY 2019-2020 to $4,398,708, which is about 15 percent of the approximate $28.6 million general fund budget.
The actual amount for the proposed general fund budget is $28.601,050 for revenues, which is a two-percent increase over last year’s fiscal plan because of “sustained increases in property taxes, the city’s largest revenue source,” according to city officials.
“Over the past five years, total revenue has increased at a rate of one to three percent per year on average,” according to a staff report.
“General fund revenues for Fiscal Year (FY) 2019-20 are estimated at $28.6 million. General fund expenditures for city operations in FY 2019-20 are projected to be $28.6 million. The total operating budget including enterprise funds, local return, special funds and grant funds is approximately $54 million.”
The city’s top revenue sources include property taxes, $15,414,035, 54 percent; utility user tax (UUT), $3,485,000, 12 percent; sales tax $2,430,802, 8 percent and user fees, $1,048,900, 4 percent.
The general fund expenditures largely are attributed to personnel costs, city officials said, at about $19,998,122. Labor negotiations are currently underway with the three unions representing police, fire and city workers.
“South Pasadena employees have not received salary increases over the last two years and received only marginal increases in prior years,” according to the staff report. “A current survey of compensation among comparable small cities in the San Gabriel Valley revealed that most South Pasadena employees are currently paid 10 percent – 30 percent below average. The impact of poor compensation has been reflected in high turnover rates and positions going unfilled due to lack of applicants. Staffing has had to be adjusted to reduce services in many areas, including the Police Department, as a result. The high costs of turnover include loss of institutional knowledge, work stoppage, reduced quality of customer service, and larger investments in recruitment, background checks and training of new employees. Further, in some cases the city has had to use contract employees at a much higher rate than an adequately compensated regular employee. The city must negotiate new contracts with all labor groups for the period beginning July I, 2019, and compensation has been raised as a significant issue that must be addressed.”
The labor negotiations with the three unions representing police, fire and city workers are ongoing and confidential, according to DeWolfe. Police and fire usually negotiate as a block and there’s nothing to indicate otherwise for these talks.
The city staff report also paints a generally difficult fiscal picture for the future without substantial increases in revenues and severe cuts in services.
“The city faces significant challenges in both short- and long-term financial sustainability,” according to the staff report. “With expenses increasing every year, but flat or declining revenues, the current structure of services is not sustainable. The costs of staffing rise every year along with the costs of materials and professional services. However, revenue sources are not rising at an equal rate, creating a structural deficit in the future. Property tax increases are minimal, UUT revenues are declining, and sales tax revenue is flat or declining. Without new revenue sources, the city will be forced to function with significantly less staff, requiring the downsizing or elimination of programs and services. Expense reduction strategies alone would require additional cuts every year, creating a compounding impact. Several revenue enhancement alternatives scored high in popularity in a recent community survey, including redevelopment of city properties, the facilitation of a small hotel and implementation of a hotel tax, and the consideration of a local sales tax measure. Staff is requesting concept approval from City Council before finalizing a financial sustainability strategy.”
DeWolfe has issued and received the preliminary results from a poll costing just under $25,000 that gauged the interest in a South Pasadena sales tax increase of ¾ of a cent to offset the deficit, which she anticipated could be as high as $2 million in just five years. The tax hike could generate upwards to $1.5 million annually in revenues, according to city officials. The poll results are expected to be released at the council’s next meeting.
Voters have to approve a sales tax increase by way of a ballot measure, but in order to get the issue on the ballot, the city has to first declare a fiscal emergency.
Officials also are examining ways to increase revenue by encouraging investment in business districts that generate property and sales taxes; increasing city fees for services; allowing new land uses; and redeveloping city properties that will generate more money over the long term. There’s talk of bringing a boutique hotel to South Pasadena that could add revenue through an occupancy tax. That’s years in the making, however, officials say.
The council also is looking at potential cuts to employees and services, including eliminating some part-time employee positions; eliminating crime prevention programs; the police cadet program; and certain special events, such as Concerts in the Park; cutting library part-time hours; and reducing teens and senior programs.
The fiscal challenge, however, is the ever-increasing liabilities presented by the pensions costs with CalPERS, officials say.
“CaIPERS’ investments suffered greatly from the economic recession that began in 2008, when the system suffered a gross impact of nearly 35 percent loss to its investment funds,” according to a staff report. “As a result, CalPERS has become much more conservative in its estimates of return. Further, CalPERS has shifted policies to account for longer lifespans among retirees and made a significant change in the ratio of working contributing members to the number of retired receiving members. While there were two working members for every retired member in 1990, there are now two retired members for less than one working member today. These are just a few of the factors that impact the financial position of CaIPERS.”
It’s important to note, city officials say, that South Pasadena is not alone in this fight. The CalPERS issue has affected many cities in devasting ways. Some cities in the not-too distant past, such as Stockton, have had to declared bankruptcy.
Chris Bray, the So Pas resident, questions the management of the South Pasadena’s finances, saying that taxation only takes the city so far.
“The reality is that a sales tax increase on top of the city’s existing library parcel tax and utility user’s tax will only allow the city to stay ahead of the trendlines for a little while,” Bray said. “Even if the sales tax initiative passes, we’ll be back to have another conversation about new taxes soon. Our three special city taxes will lead to a fourth. We’ve lost control of our pension costs. Everything else is just noise.”