January 22, 2013 – Worksession FY 2014-15 Budget

Staff Presentation
Two major elements of our budget: General Fund and all other Special Funds
Special Funds have challenges due to the inflow of revenues and how this might impact services

FY 2014-15 budget will be adopted end of June 2013. Expenditures will exceed 2014 revenues by 3 million and in 2015 and by 2.1 million.  The budget assumes there will be no new capital programs, no salary increases and no cuts in other federal and state funding.

Challenges
While Property Transfer Tax will increase.  The following will have negative impact on the budget:

  • Interest income will decline.
  • Parking citations continue to decline.
  • Health Care costs will increase by 9% and Dental Care by 5%
  • Insurance for Catastrophic Loss is increasing ($700K)
  • Pension payments to CALPERS are rising ($2.6 Million)

Major Funds in Deficit

  • Refuse Fund ($500K – $1M)
  • Gas Tax and Measure (funds street maintenance and repair) ($500K)
  • Parks Tax Fund ($800K)
  • Housing and Community Services (anticipated 8.2% federal fund cut) ($700K)
  • Public and Mental Health ($600K)

At the February 19 worksession regarding infrastructure and unfunded benefit liabilities staff will present council with options to address the benefit liability to 80% funded over a period of 10 and 15 years.
Staff is recommending a 2% recurring across the board reduction in General Fund costs.  Other funds should be balance so the General Fund does not have to make up the difference.
An additional council meeting needs to be added in May so there can be two public hearings prior to budget adoption on June 25.

Councilmember Comments
Bates:  I am astounded by the amount of work done by our Parks and Waterfront.  I am sorry we are running a deficit but we need to address this.  I gather the 2% only addresses the General Fund. But in the other funds like the Gas Tax those funds are just gone.  I don’t know where we will get the money for Housing and Human Services.  Do we think we can cover these costs or will the services go away?  So we will not backfill any shortfall.  So this will also be true in the other funds. But we could do something with the Refuse and Parks funds but the voters will have to weigh in on this.  And I guess we will be looking at unfunded benefit liabilities in 5 year increments.
Wozniak:   The CALPERS Employer Rates are actually higher because it does not include the component that the city contributes on behalf of the employee.  Sick leave and vacation accrues on a monthly basis – it looks like it should be about 10% and what is shown is lower.  So this is what is not being used on an average basis and the estimate is based on historical trend.  We need some principals around long term stability.  Employee costs are about 77% of the general fund.  I don’t think we take a long view of these budget challenges and only look on an annual basis.  So I would look at an employee cost reduction to 70% over 10 years.  So as employee costs increase we have less and less to work with for any infrastructure or services for the community.  I want to not only look at the 2% cut but look at a longer term approach of how we can be sustainable – you can’t see the bigger picture when you look at it year by year.  On the budget workshops, it would be nice if we could get more detail on the budgets.  Such as overhead, employee costs, maintenance instead of the “roll up” numbers.  I hope when we get the unfunded liability report we can get some context around the time horizon and how current and future liabilities impact the total revenue horizon also.
Bates:  I think it would be great if we could get more detail and also look at the projected costs against the projected revenue streams.
Capitelli:  Did I hear you say there will be a 2% cut in 2014 and 2015.  Does the CALPERS chart include retiree health costs?  The CALPERS increases are a substantial chunk of our deficit and we have no control of this at all.  Housing and Community Services – we know that federal funding is being cut and we really don’t know what the state is going to do.  Do we have any idea on what the State revenues will be?  Finally, this Council will need to come to terms with continuing cutting across the board but at what point do we need to look at cutting a program?   We will need to start evaluating programs.  I have been here 8 years now but we must have some programs we have rendered ineffective due to cuts.
Maio:  I want to talk about the sewer funds and mingling them with storm water run-off.  I was wondering how much of the storm water/sewer waste is the responsibility of the home owner and how much is part of our infrastructure.  And how do the mechanics of these programs work?  Are we looking at private overflow issues as well as those for which the city is responsible?  So the only way we are getting residential repairs is when homes are sold.  Is there any way we can get to the privately held issues and force improvement?  Now that we have passed Measure M how will our investment into our streets help with the storm drain issue?

Staff:
There are separate systems.  There have been some sanitary system overflows but since 2008 we have reduced the incidents by 85%.  We have been focused on making repairs based on data driven analysis and applied the resources where it is most needed.  EBMUD is where we send all of our overflow and they have had collection system overflow problems.  We are working to reduce the wet weather peak issues.

Moore:  The HIV grant reduction.  What are our options to fill the holes that are being cut?  I want to know exactly what services will no longer be provided.  Are we no longer subsidizing the Housing department – are they still asking for in kind contributions?  How about street lights?  Can we add more street lighting?  So we are still subsidizing just the existing street lights.  I would like to look at funding street lights the next time we have an election.  I would much rather cut a manufactured program than to continue to cripple all of our programs.
Arreguin:  We are going to have to look at our low income services and how we are going to help the people who need these services.  Street lights can be tied to crime prevention.  We need to define what an “ineffective” program is and what might contribute to that definition.  We need to look at who we are serving.  Some of the assumptions such as no additional federal/state cuts are not feasible.  Regarding the refuse fund there was some discussion on changing the rate structure and a possible reorganization of the refuse department.  I know we did give notice to our franchisees to garner more revenue for our city services.    This is the first time I have heard about reduction in mental health services and how will this cut impact our services.  I also want to understand what we are going to lose with our HIV prevention services.
Anderson:  I am also concerned about street lights and we need to look at the principle on how and to whom we apply services and to what segments of our population.  Could you please elaborate on the reduction in interest income?  I know we have received some savings on debt refinancing are there any more of these opportunities?
Wengraf: Parking citations is a blank. I know we are getting some income.  How much?  How much are we down?  So our revenue is down about $1 million?  Other cities are down as well?  So perhaps the new machines are a culprit?  I am concerned about how we can move forward in a conversation in some depth.  Do we have a council meeting that is solely dedicated to budget?  This is not a discussion that should occur under time pressure and we rarely have that opportunity.
Bates:  We could consider that.  This is a downside.  Where could we possibly increase revenue?  What would happen if we asked for a 2.5% cut?  Are there fees we could adjust to get more money?  What are some other ideas where we could gain revenues?  Like I am told that our residential parking permits don’t cover the costs.