The long awaited second quarter financial report was quietly distributed to City Council members tonight after the City Council meeting. It showed a whopping cash deficit of $35.2 million, which is more than a third of the entire General Fund budget.  

Also included was an Action Plan to reduce the deficit to $7.1 million by the end of the current fiscal year. Most of the debt reduction would come from using some $6 million in Redevelopment Agency assets to fully repay the remaining debt to the General Fund and to use $13 million of Redevelopment Agency Bond proceeds that had already been used for debt repayment last year to be used for operating costs instead of capital costs. This apparently took some legal ingenuity and pretty much killed the prospects for a City Hall rehabilitation any time soon. The rest of the money would come basically from shuffling funds around between restricted accounts and the General Fund. 

According to the Action Plan, the remaining $7.1 million could be covered only by laying off several hundred more employees or by employees agreeing to pick up their 9% share of PERS pension costs. The former would gut City services, and the latter is, in my opinion, not likely to happen.  

Despite all the hoopla about the high-priced consultants coming up with new ideas, there really were none except for the revelation about exactly how bad off this City is. 

Interim City Manager Jay Corey asked the City Council to meet Thursday night and adopt the Action Plan. The mayor will also present the annual “State of the City” address. I don’t envy her. The City Charter states “The Mayor shall work with the City Manager in preparing an annual budget for submission to the City Council.” 

What was not clear is how all this happened. The report blames mainly out of control labor costs fueled by generous pension plans. The report also notes that “the City’s annual budget process has been based on accrual accounting which have  allowed negative cash balances to be carried forward, and has not focused on cash. The City needs to conform its spending to actual cash received.”  That seems logical – but why wasn’t it being done? Maybe the Grand Jury can find out.