March 18, 2004
Interim City Manager Jay Corey did not find out the true magnitude of Richmond’s budget deficit until after Isiah Turner had announced his retirement and left office. I suppose Corey could have bailed out in shock, but he didn’t. He agreed to stay on and direct the effort to find a resolution. Maybe he is having second thoughts – I certainly wouldn’t blame him.
But he needed help, and the top management team he was left with did not have the experience and technical skills to accurately assess the situation and chart a course out of the maelstrom. Some of them had already become part of the problem rather than part of the solution. On February 10, Corey moved decisively to acquire the assistance he needed, bringing in attorneys and workout experts as well as a media relations consultant.
Initially, I supported hiring the Orrick firm for the expertise of Richmond resident and bond expert John H. Knox. I was less enthusiastic about the other law firm, Winston & Strawn because they had no previous municipal experience similar to ours. I would have been more supportive of a municipal management firm than one that touted their bankruptcy experience. But one part of their services was to provide a professional labor negotiator, which we badly needed. Both firms were approved on February 10 in closed session.
Corey also brought in a media consultant, Davis & Associates, known less for communications skills than for association with high profile politicians. Goodness knows Richmond needs communications assistance, but I didn’t believe a spinmeister was the answer. What Richmond still needs are public officials who will answer the phone (or return phone calls) and simply tell the truth, which is what the public deserves.
The first work product of the new consulting team was an Action Plan that outlined how the City could resolve approximately $28 million of a $35.4 million cash shortfall. A significant chunk, approximately $13 million would come from the proceeds of a Redevelopment Agency bond previously used to pay back an old General fund debt. Credit John Knox with figuring out how to legally use it for operations instead of capital projects.
The remainder of the Action Plan consisted of accelerating an already planned repayment of an additional $6 million of the old Redevelopment Agency debt and completing a number of interfund transfers that should have already been made. This didn’t seem to be rocket science, but if it required the work of our new team of highly paid experts to figure it out, we are probably in worse shape from a management standpoint than anyone previously comprehended.
There was a collective sigh of relief that a major financial hurdle had been breached. Only $7 million left to go this year, and we had some time to figure out how to resolve a projected $21 million shortfall the next fiscal year.
I don’t know whose idea it was to “go to the people,’ but no one asked the City Council. On March 2, we were informed that there would be six community meetings to explain our predicament to citizens and get their suggestions on how to resolve it – and by the way, City Council members were expected to attend and facilitate breakout sessions.
Based on the trend to date, the meetings have had limited success. At most, they will have been attended by a few hundred citizens, many of whom appeared at multiple meetings as well as being regulars at City Council meetings where the same presentations were made. At some meetings, citizens were outnumbered by City employees, consultants, City Council members and union leaders. It is difficult, however, to criticize the concept. A popular refrain in Richmond has been that the people are neither informed nor consulted about important public policy issues. Other than some complaints about the locations of the six meetings (no venue “south of the BART tracks”), the opportunity for the people to hear and be heard certainly occurred. Despite my misgivings over the details, I have to concede that the meetings were a good idea. It’s disconcerting, however, that concern over the height of a front yard fence can ignite the participation of 700 people when the prospects of shutting down a good portion of municipal services attracts only a few dozen.
It was shock to me that after authorizing $250,000 for the expert team on February 10, we were requested barely a month later to appropriate another $300,000, bringing the total to $550,000. Knox, I could see. We still had serious business involving bonds. I was, however, beginning to lose confidence in Winston & Strawn. I had seen no work product that provided any new information or innovative ways out of our predicament. There was no discernable progress on the labor negotiations front. No one from Winston & Strawn had bothered to contact me or ask me my opinion about what to do. They were the experts, and they apparently had all the answers. Unfortunately, they had shared none of them with the City Council.
As of today, Davis & Associates had written exactly four press releases. You can see them on the City’s website, along with the Mayor’s State of the City address at http://www.ci.richmond.ca.us/pressfinancials.htm. I don’t know if Davis & Associates crafted the Mayor’s address, but whoever did managed to slight half of the City Council by recognizing only three of her colleagues: “I want to thank the Council for all their hard work,” said Mayor Anderson, “…but particularly the persons with whom I work most closely: City Council members Maria Viramontes, Mindell Penn, Vice-Mayor Griffin …” To be generous, maybe I should be grateful that the mayor doesn’t work closely with me. In addition to writing press releases, Davis & Associates provided the invaluable service of cutting and pasting stories about Richmond from the West County Times and emailing them to City Council members – a service I can particularly appreciate because I do it myself from time to time. I just couldn’t see the value in extending the contract. In fact, I just received a clipping from today’s West County Times via email, courtesy of Davis & Associates – apparently their final official act.
By the time the $300,000 extension of consultant contracts rolled around, the City Council had been on notice about the current dire financial straits a little over three months, and no substantive resolution was in sight. No concessions have been made by public employee unions to reduce benefit costs. Assumption of PERS contributions by employees would only reduce the deficit by a little over $5 million annually – roughly one quarter of the total required.
Very little that I can see has been done by either the consultant team or City staff to focus on revenue enhancement – either in the past or recently. The City Council continues to be reluctant to consider revenue enhancement opportunities, and management continues to make excuses for failure of cost recovery strategies to take hold. City Council members continue to have significantly conflicting views on how to approach the problem. Lack of leadership is apparent on all fronts.
My best guess about how this will turn out is that 300-400 employees will be laid off within the next two weeks and that City services, as we know them, will be a thing of the past. What I believe we need to hear from the citizenry is where those cuts should be made. That was supposed to be a major theme of the Town Hall Meetings, but it seems to have been downplayed.
Richmond City Council turns labor lawyers into lame ducks
RICHMOND - A team of experts assembled to rescue Richmond from financial collapse has been left limping after the City Council voted Tuesday night to cut short the efforts of its labor lawyers and jettison its spokesperson.
The night before a scheduled union negotiation, the council rejected a request to retain Winston & Strawn, a law firm. A last-minute motion by Councilman Tom Butt kept the firm on board until next Tuesday.
But insiders say the lawyers' brief tenure weakens City Hall in its talks with the International Association of Fire Fighters Local 188, which can easily wait out the lame duck team.
"The actions they took in public session were akin to a vote of no confidence, and what does that say to the people on the other side of the bargaining table?" said bond counsel John Knox on Wednesday. "The impression has already been given, and I don't know how you unring that bell."
March 23 also is the date San Francisco publicists Davis and Associates were slated to deliver a report on community proposals, which now may never be compiled.
"It's like saying, 'Gee, we have a cardiac arrest, but we don't want to see a specialist,'" acting City Manager Jay Corey said.
At issue were $290,000 in contracts for the consultants. They have spent $265,000 approved in February.
"It took at least two or three years to get into this situation," Corey said. "It will take more than a few weeks to get this job done."
The council retained Knox, who engineered a "very technical and novel" conversion of $13 million in bond funds to cash and is working on legislation to let the city borrow against future property tax receipts.
But Councilmen Richard Griffin and Nat Bates railed against Winston & Strawn, and castigated firm partner Peggy Sheneman for not submitting bills.
Sheneman said she handed Corey and the city attorney a detailed, 40-page invoice but could not have predicted how involved the job was going to be.
Over the last month, the consultants peeled away layers of miscalculation to reveal a deficit of $35.2 million, and proposed a sweeping action plan.
"In that this did not go to the finance committee, I'm not prepared to vote on anything tonight," Bates said.
A motion to extend Davis' contract died for lack of a second.
Anderson and others praised Davis for relaying complicated financial matters in easy-to-grasp language. Critics say staff used Davis' services indiscriminately, turning over all press questions with no regard to cost.
Several council members asked where the city was getting the money for the consultants' fees, but Corey could not provide a clear answer.
No matter, said Richmond Chamber of Commerce president Mark Howe: "Without them, we're talking chaos," he said.
"The worse scenario is that bondholders can sue us," said Councilwoman Maria Viramontes.
If the city cannot negotiate union concessions, its only recourse is to lay off workers "or to go into Chapter 9," Viramontes said. "We don't want to go into bankruptcy. That's why we brought these people in."
"It is very, very concerning to the bond markets that the city doesn't have an experienced labor lawyer," Knox said. "There are things the city has to do to protect itself. We're not going to get this done by March 23."
$95,000 John Knox contract:
Yes: Mayor Irma Anderson, Council members Gary Bell, Tom Butt, Richard Griffin, Mindell Penn, Jim Rogers, Maria Viramontes
Abstain: Councilmen Nat Bates, Charles Belcher
$109,188 Winston & Strawn contract:
Yes: Anderson, Griffin, Penn, Viramontes
No: Butt, Rogers
Abstain: Bates, Bell, Belcher
Fund Winston & Strawn through March 23
Yes: Anderson, Bell, Butt, Griffin, Penn, Viramontes
Abstain: Belcher, Bates