You said it: City budget is easy target

You said it: City budget is easy target

Elizabeth Warmerdam

It's budget time at City Hall, which means Alameda's budget team is diligently finalizing our financial plan for the next two years. It's also time for some regular naysayers to take pot shots at City Hall. These critics insinuate that your city's staff is corrupt. They proclaim that bankruptcy is imminent - as they have for many years. Or that City Hall is unethically violating generally accepted accounting principles and hiding the true nature of the city's financial position. As the person who leads our city's budget team, I'd like to provide some insight into the city’s finances and the statewide process used to develop a budget.

The City of Alameda receives roughly $163 million from various sources of revenues over the course of a year, most of it restricted for special purposes like sewer infrastructure. However, the city’s main checking account, called the general fund, receives about $72 million per year from things like property taxes, sales taxes, and other “general sources.” General fund expenditures hover around the same amount. Most people like to focus on this account because it is unrestricted and, historically, it has paid for the most popular services such as police, fire, libraries, roads, and recreation and parks. However, since the passage of Proposition 13, it now accounts for only roughly 40 percent of all city funding.

Over the last five years, general fund revenues have sharply declined due to the bad economy; now, they are slowly recovering. Unfortunately, increases in health care costs and retirement benefits, which are primarily paid for out of the general fund, will outstrip those revenue gains. This is not news; it’s the story of hundreds of cities across California that are looking at ways to address the very same situation.

Balancing a budget is not an easy task; and, notwithstanding some critics’ proposed solutions, magic is not a tool upon which we can rely. In a nutshell, just like a household budget, our controller estimates our revenues for the year and at the same time our departments estimate their staffing, equipment, projects, and other needs for the same period. This year, based on initial efforts, our projected expenditures were roughly five percent more than our revenues and expected to grow to seven percent next year. Knowing this, we directed our departments to cut their budgets between one and five percent, scrutinize all proposed projects, correctly allocate their costs based on who is doing the work, increase revenue if appropriate, and test long held assumptions of how we’ve done business.

As a result of these efforts, we’ve constructed a balanced budget mostly through structural changes (i.e. they continue on into the future). As with a household budget, we try to limit the use of one-time money. Indeed, the use of one-time money to fill the gap has gone from 57 percent in fiscal year 11/12 to an estimated 35 percent in the next two years combined. The one-time money comes from a variety of sources, including the use of earned savings from last year’s tightened belts, to revenue that was not anticipated as a result of conservative forecasting. Some assume this is a sleight of hand. We consider it a dividend earned through prudent budgeting.

Assuming the drumbeat of bankruptcy is meant in good faith, what people should be most concerned about is the city’s other post employment benefits (OPEB) liability, also referred to as our retirees’ health care benefits. That situation took a generation to develop and will take time to fix. Last year, the city manager appointed an OPEB task force. Once the city’s budget is passed, that group’s recommendation will be reviewed with City Council, and a road map will be drawn to solve the problem. Several months ago, Standard and Poor’s rating agency reaffirmed the city’s AA credit rating (Vallejo’s is CCC+) but noted that the reason the city's rating wasn't better (AAA) was because of the city’s OPEB obligations. We must address this situation in partnership with our employees, and we plan to do so in the coming months.

Despite protests to the contrary, the City of Alameda is in much better shape than many in the state. We do have our challenges, but we are on the right path. Last year the city spent $1.1 million less than it planned and earned $1.5 million more than it projected. In most businesses, that would be a good year. In government these days, that’s a great year.

Alamedans are encouraged to join the City Council at 7:00 p.m. on June 11 to again review the Fiscal Year 13/14 and 14/15 budget. We understand that evening meetings are not always convenient, so e-mails are welcome, as are phone calls or simply stopping by. Input is not considered an inconvenience. It’s Alameda’s money and there is no monopoly on good ideas. Please join us if you can and let your opinions be heard.

Elizabeth Warmerdam is an assistant city manager for the City of Alameda.

Comments

Submitted by Robert T. Sullwold on Wed, May 29, 2013

Let’s be clear about the facts. Staff’s own “General Fund Budget Summary” shows that:

• To pay all of the expenses budgeted for FY 2013-14, the City will need to draw down reserves by about $700,000.

• To pay all of the expenses budgeted for FY 2014-15, the City will need to draw down reserves by about $1.8 million.

Call it “one-time money,” or “a dividend earned through prudent budgeting,” or even manna from heaven, the fact is that it will take a reduction in the reserve balance to "balance" the budget for the next two years.

Submitted by Elizabeth Warmerdam on Thu, May 30, 2013

With all due respect, reserves are reserves if that's where you put unexpected savings/revenue (i.e you don't need them). There is no argument that we are using $700,000 in FY 13/14 and $1.5 million in FY 13/14 that has been made available from prudent budgeting. And if we didn't need it, Mr. Sullwold is correct, it would have further increased the Fund Balance. But, the General Fund fund-balance at the end of Fiscal Year 10/11 was $16.7 million. At the end of this budget cycle in FY 14/15 we expect it to be $19.5 million. The fact is that the current Administration has increased reserves, and it has done so in a bad economy. I'm curious how that is a bad thing?