There are many optimistic assumptions and very little transparency in the city’s recently adopted budget and six-year financial plan. The city projects an eight percent jump in sales taxes next year, for example. What assumptions justify this? Increased gas prices? A new Walmart? A general economic rebound? Neither the budget documents nor inquiries to city staff shed any light. Property taxes show steady and accelerating growth over the next six years. How much of the increase is new development? How much of it is rising property values?

A request to the city for records relating to revenue assumptions turned up nothing that would justify the big increase in sales tax revenues. We can only guess that the city is assuming a new Walmart in the vacant Home Expo site, despite concerns over inadequate parking. As for longer-term projections, the records request returned nothing at all that backed up the revenue forecasts beyond 2012.

The lack of public discussion about financial assumptions during a council meeting on the budget is as troubling as the lack of documentation. It seems the projections are made behind closed doors by staff and consultants and our elected representatives accept them at face value without question.

But most obscure, and most dangerous to the long-term financial health of Encinitas, are pension costs. In the hundreds of pages of budget and financial plan documents, nowhere are pension costs honestly and transparently addressed. A single table shows pension costs only as a percentage of payroll, not in dollar terms, and only for the first two years, not for the full six years of the financial plan. What is the city hiding? If the 15 to 35 percent increase in city pension costs in the first two years is any indication, the hidden third through sixth years are likely much higher. Is the city afraid to show these numbers to the public?

Still worse, the numbers the city is using assume that CalPERS will earn 7.75 percent on its investments annually forever. The staff report notes that “continued strong returns may lower future employer contributions,” but omits the obvious corollary, that lesser returns will leave taxpayers on the hook for much larger pension costs. With bond yields at extreme lows and equities at historically high valuations, the notion that we are likely to see continued robust returns forever is suspect at best. The city should plan for, and show, pension costs under a truly conservative scenario of investment returns.

As with revenue assumptions, there was appallingly little discussion of pension costs in the council meeting approving the budget. Discussing this large and growing liability is apparently taboo in polite Encinitas company.

Anyone can declare a budget balanced by playing games with the revenue and cost estimates. It is time the city had an honest discussion with the public about the city’s financial future.

Ed Wagner
President
Encinitas Taxpayers Association

Riverside County lets union members watch negotiations. The public is as stakeholder too. Would it be harmful to let the public see how poorly the staff is treated behind closed door sessions? If the unions agree, would the council agree to open or record their “bargaining” sessions?

In an effort to better comply with the state’s laws on open meetings and public records, The City of Saratoga has adopted a new electronic communication policy for its council members and planning commission members. “We are in a constant state of discussion about the best way for the city to comply with its various obligations under the law, and the various interests and desires and demands of a community that communicates with the city via e-mail,” said city attorney Richard Taylor during a joint meeting between the council and commission.  Although current laws were “developed in the days of pen and paper,” they still apply to current forms of electronic communication, he added.

Council and commission members who were using their personal e-mail accounts to respond to questions and comments from citizens were given a new city e-mail account and were warned by Taylor to no longer use their personal e-mail accounts for city business. “If you were to use your personal account for city business, then when we get a public records request, we have to be sure to look through your personal accounts,” Taylor said. “If we get sued, we have to tell you to freeze and not delete anything in your personal or business accounts.”

The policy also forbids the council from using “e-communication” during meetings.

The group also discussed adding a text message to the top of all e-mail communications that would alert members and residents not to forward any communication from one council member to another.  E-mails communications that discuss policy issues among a majority of the council members can be defined as a “serial meeting,” which is illegal under the state’s open meeting law, the Ralph M. Brown Act.
Saratoga News, 9/1/09

The multi-term members of the Encinitas Council bring a lot of experience to the table in establishing long-term financial risk in the form of pension liabilities and salary schedules.

Coming out of backroom negotiations in 2005:

Stocks, Houlihan, Guerin and Dalager approved a pay package that would give a staggering 35 percent raise to city workers in the form of a lavish, lifetime boost in their retirement incomes. For good measure, ordinary wages would rise 3.2 percent annually for three years. All this while state government wrestles with billions of dollars in projected deficits, a precarious condition that threatens the fiscal health of local governments.

One year later the city declared it was unable to pay for all its priority projects (library, Hall park, fire stations, & public works yard), and would take out $20 million in loans.

Food for thought: Only the Library and the public works yard have been completed to date. The Hall park phase I is still officially underfunded.

Coming out of backroom negotiations in 2008:

Barth, Stocks, Houlihan, and Bond approved a 15% pay raise over four years right as structural problems in the economy became more difficult to ignore. It had been conventional to approve 3 year contracts. The pay raise resulted in a proportional increase in pension liabilities.

Several citizens asked the council to rethink a four-year agreement because of the housing slump, unemployment and other economic uncertainties. It was too late, the decision had already been deliberated and endorsed behind closed doors.

At the time, “If I were in private business, I would not lock in the kind of increase you’re considering now,” said Gerald Sodomka of Cardiff.

Kevin Cummins suggested a shorter contract or a contract with a clause allowing the terms to be revisited if the economy didn’t hold up. The public comments were blown off. It was already a done deal.

Council Member Bond did point out that the city has a notable stabilization fund that can be tapped if revenues come in short due to a short economic recession. Regrettably, the council doesn’t seem to realize that avoiding a budget squeeze is not the only reason to have gone with a shorter contract.

It was unclear what the labor market was going to look like in 1, 2, 3 or 4 years, but there was good reason to think things were structurally unsound in the economy. The private sector was already pulling back on benefits, salary, and staffing and parts of the public sector would follow.

In hard times it is tougher for the unions to bargain for raises exceeding salary increases found in the private sector. The union probably knew this and they wisely “negotiated” a contract that will got their union members (and, in practice, management) through the rough spot unscathed. That is probably why there were audible, but restrained, cheers from staff when the council gave them 4 years of unconditional raises. It should be sobering to the taxpayer that staff actually cheered the council’s unanimous decision.

No one on the council applied business sense to that decision. The negotiation process did not result in a wise or fair process or result.

This week Jerome Stocks made a sturdy effort to make pension reform part of union contract negotiations.

Although the city had told the public the Hall park construction would begin in 2010, there has been great concern that the city did not have enough money saved up to open the park. The official budget projections show Phase I as being under funded. The ETA, Council candidates and the Parks and Rec Commission have repeatedly asked city staff why the construction cost estimates are being withheld from the public. Staff respond by saying they do not want to share what has been provided by the consultant to date. They claim the information that has been submitted to the city indicates the costs will be substantially less than originally predicted and imply that funding is not an issue.

Mayor Bond was quoted yesterday in the NCTimes:

The proposed Hall property park, which is south of Santa Fe Drive and west of Interstate 5, may go from the planning stages into the early construction phase in 2011.

“We’re going to have to take a look at what we need, rather than what we want,” Bond said, adding that the city has most, but not all, of the money it will need for the first phase of construction.

The contract for the park construction plans has no deadlines within it.