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