Tom Butt
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  Contra Costa Times editorial: No more excuses for ignoring Richmond's fiscal crisis
December 30, 2015

This in response to the Contra Costa Times editorial “No more excuses for ignoring Richmond's fiscal crisis,” which is copied at the end of this email.

The underlying theme of the editorial is that Richmond is in a “financial crises” and that “Richmond officials spent most of 2015 dancing around the city's severe financial plight.” This is simply not accurate. Richmond has work to do, and City leadership has recognized and anticipated this for at least the last two years. During 2015, a detailed evaluation of the challenges and potential solutions was completed. No one is sticking his head in the sand.

Apparently bashing Richmond for fiscal irresponsibility is the primary cottage industry at the Contra Costa Times this year. Unfortunately, the editorial content is factually erroneous and ignores a number of recent developments that are inconsistent with its message.

City Manager Bill Lindsay, the City Council and I are well aware that we have fiscal challenges that need to be managed. Remarkably, we actually developed that information some time ago without the Contra Costa Times’s badgering, and we are moving toward solutions.

The most recent “Multi-Year Budget Update” presented by Russ Branson of the National Resource Network, was a collaboration of City staff and the National Resource Network that has been evolving most of this year, not a wakeup call from an “outside company,” as termed by the Contra Costa Times. See An Inside View of Responsible Fiscal Planning, December 21, 2015.

The city manager has never acted as if, as the Contra Costa Times writes, “everything was hunky-dory.” In fact the city manager has warned in writing in the last two budget cycles that “one-time, non-operating revenues have been a significant factor in maintaining the City’s annual operating budget,” and that the City “will continue to have a structurally unbalanced budget unless strategic changes are made to the City of Richmond organization.” But don’t just believe me; take a look at the following from the staff report for the 2015-16 budget in June of 2015:

In recent years, during the severe recession, one-time, non-operating revenues have been a significant factor in maintaining the City’s annual operating budget. Last year, and on several occasions during the recession, the City of Richmond used these one-time revenues to maintain its policy-mandated fund balance while it incurred operating deficits.

In last year’s budget report, staff wrote:

(The City of Richmond) has, and will continue to have, a structurally unbalanced budget unless strategic changes are made to the City of Richmond organization. A structural budget deficit results from a fundamental imbalance in revenues and expenditures, as opposed to a deficit based on short-term factors.

Staff also wrote in this report that:

Staff is being mindful not to be short-sighted by proposing drastic reductions in programs and personnel from which the City would have difficulty in recovering in the long term, or by deferring important investments that will become more expensive if delayed.

During the past year, many strategic budget changes have been made that have allowed for this balanced budget to be presented, and staff believes that this has been done without long-term damage to services.

However, there are still many investments that are being deferred, notably in areas of infrastructure. Staff believes that one-time investments in infrastructure (such as a significant investment in street and road reconstruction) should be strongly considered when (or if) significant one-time revenues are received during FY 2015-16. The following are general areas that staff will continue to examine in its budget management activities:

•Continue to analyze the structural integrity of all funds, which includes funds subsidized by the General Fund;
•Implement organizational restructuring;
•Work with bargaining units to discuss the City’s future budget constraints and possible solutions, especially as they relate to Other Post-Employment Benefits (OPEB);
•Research future revenue opportunities for new and existing projects and programs;
•Continue seeking grant funds;
•Continue to take steps to eliminate General Fund subsidies for revenue-based programs;
•Work with departments to identify additional cost reductions and efficiencies.

Staff recommends that the City Council continue its review and discussion of the budget and then adopt of FY 2015-16 Operating Budget and Capital Improvement Program.

This staff analysis is consistent with both the internal “forecast predicting the city's financial fall,” as Contra Costa Times erroneously described a draft 2014 five-year forecast as well as the message from the “Multi-Year Budget Update” presented by Russ Branson of the National Resource Network.

The Contra Costa Times delights in pointing out continuously that the City’s “credit rating dropped to junk bond status,” but failed to mention that on December 23, 2015, the City of Richmond received an updated issuer credit rating from Standard & Poor’s rating Service (S&P), affirming the City’s BB+ issuer credit rating, removing the ratings from CreditWatch (where Richmond had been placed with negative implications on September 1, 2015), and noted the outlook is stable. According to S&P:

The updated rating was an affirmation of the investment graded BBB+. The stable outlook reflects our view that the city’s performance of a multiyear financial forecast should enable management to identify and implement gap solutions that keep budgetary flexibility from weakening. Providing additional support for the ratings is the city’s participation in a broad and diverse metropolitan area. We do not anticipate changing the rating during the two-year outlook horizon.

The Contra Costa Times also failed to note that the City’s major revenue sources (property tax, utility users tax and sales tax) are tracking at or higher than their currently budgeted levels. There has been consistent steady growth in these combines revenue sources, even when taking into account the voter approved Measure U sales tax increase.


Historical Summary of Property Tax, Sales Tax, Utility Users Tax, and Chevron Property Settlement Payments

The Contra Costa Times accuses the City of continuing “to ignore its mounting debt for employees' retiree health care.” The City currently budgets for the “normal cost” of these OPEB (Other Post-Employment Benefits), so the unfunded liability is not increasing but is not currently budgeting contribution rates that are adequate to extinguish the unfunded liability associated with these rates over time. However, the City Council did not ignore this, adopting a policy in December 2014 to place into its OPEB trust an amount equal to one-half of any one-time, non-operating revenues and one-half of any year-end surplus in excess of the City’s minimum reserve requirement to reduce the City’s unfunded OPEB. The city manager has also stated his commitment to “meet and confer” with the bargaining units to develop a long term strategy for dealing with OPEB. We are expecting from $13 million to $18 million in one tome, non-general fund revenue in the next year that can be directed to reducing OPEB liabilities.

Since 2014, General Fund liquidity has been trending upward, not downward as the Contra Costa Times infers. From June 30, 2014, to the end of FY 2014-15, General Fund liquidity rose from $3.7 million to $7.2 million. In addition, cash in all Governmental Funds, which includes insurance reserves, has nearly doubled from $8.7 million on June 30, 2014, to &17 million at the end of FY 2014-15.

The irony of all this is that as mayor and as a city council member, I get squeezed constantly from two opposite directions, one of which demands fiscal responsibility (meaning budget cuts and redirecting revenue to pension and OPEB liabilities) and the other of which demands better and more services. Sometimes both come from the same people, like those who criticize us for not using the first year Measure U funds for street maintenance but also demand that we cut city services and programs. You can’t have it both ways.

Mayor Tom Butt

Contra Costa Times editorial: No more excuses for ignoring Richmond's fiscal crisis
Contra Costa Times editorial © 2015 Bay Area News Group
Posted:   01/03/2015 09:00:00 AM PST Updated:   about 16 hours ago

Richmond officials spent most of 2015 dancing around the city's severe financial plight. As its credit rating dropped to junk bond status, they acted as if everything was hunky-dory.

Meanwhile, we learned that City Manager Bill Lindsay had in May 2014 blocked release of a forecast predicting the city's financial fall. The report warned of mounting general fund shortfalls as expenditures continued to exceed revenues.

Lindsay said the work of 30 of his own staff members was poor quality. He planned to contract with an outside company instead. Well, that forecast has finally arrived. And the message is the same.

The city has a structural deficit. It has been consistently spending more than it has brought in, with a $45 million cumulative deficit over the last six years. It has used reserves and one-time moneys to balance the books.

On the current trajectory, the city will be $23 million in the red by fiscal year 2021. And that's actually an optimistic forecast that assumes the economy stays strong, employee wage rates are frozen, the city continues to ignore its mounting debt for employees' retiree health care, and deferred road maintenance is jettisoned.

This is not merely a theoretical problem looming sometime in the future. The crisis is now: To balance the general fund budget for the fiscal year that begins July 1, the city must cut expenses or increase revenues by $8.7 million, or 7.6 percent.

Richmond is at a crossroads. The choices officials make in the next year "will either lead to increased financial stability or increased financial distress," says Russ Branson, the consultant who prepared the forecast.

The City Council, he says, must take "definitive action" to balance the budget and boost reserves. Spending must be cut. Employees will be affected. Service levels may be reduced.

None of this will surprise those who have been carefully watching Richmond's finances or heeding the warnings of the bond rating agencies and the city's financial consultant. But for those who have been listening to spin from Lindsay, Mayor Tom Butt and former Mayor Gayle McLaughlin, it might be a rude awakening.

The city manager withheld the first fiscal forecast as city officials sought voter approval of a half-cent sales tax increase that campaign promotions promised would go toward fixing badly deteriorating streets. Instead, the money will be needed for ongoing expenses.

Lindsay says this forecast is more solidly grounded than the one his staff prepared. Even if true, that doesn't justify the 11/2 year delay. The city faces a financial crisis. It should have been addressed then; it must be addressed now.