Bombshell: City Mgm't Admits Changing Its FY18 Budget Revenue Assumptions From Council-Approved "Reasonably Conservative" To "Reasonably Optimistic"...And Says Without Doing This, Proposed FY18 Budget Would Be Roughly $7 Mil Short Of Balanced
|(July 26, 2017, 9:42 a.m.) -- Just days before Mayor Robert Garcia is due to release a proposed FY18 City budget with his recommended Council actions -- entering an election cycle in which he and five Council incumbents are seeking
The revelation that current City Hall spending exceeds reasonably conservative revenue estimates -- despite voters approving a Mayor/Council-sought sales tax increase that has left LB with the highest sales tax rate among CA cities (shared with only a few other cities) -- came during a review of City Hall financial policies at the July 25 meeting of the City Council's Budget Oversight Committee, and left Committee chair Stacy Mungo, vice-chair Suzie Price and member Al Austin audibly stunned.
[Scroll down for further.]
The disclosure came after Director Financial Management, John Gross, recommended that the Budget Oversight Committee "consider a change" [that the full Council would ultimately have to approve] in the City's financial policies to change from "reasonably conservative" revenue projections to "reasonably optimistic" revenue projections, saying the change would let management "assume that we have more operating revenues and thus we are in a better position to provide services to the city, and to the residents." Mr. Gross candidly acknowledged:
"The problem with it, and there is a risk, there is an offset, you have an increased risk that all those revenues aren't going to occur and you have a mid-year budget problem, and it's not a risk, it is a certainty, that you will have less one-time funds available for one-time needs at the end of the year for capital and infrastructure. So it's a bit of a trade-off, but with the need for maintaining and improving our operating budget, that is what we recommend the BOC consider."
And he added a bombshell: that management has already applied "reasonably optimistic" (instead of "reasonably conservative") revenue assumptions in its proposed FY 18 budget.
Councilwoman Mungo swiftly voiced discomfort with such a change. Councilwoman Price said, "This is not a policy change that I would feel comfortable with." Councilman Austin likewise voiced his disapproval of the change.
And in response to a question from Councilwoman Mungo, Mr. Royce disclosed that if management had applied "reasonably conservative" revenue projections, its upcoming proposed FY18 budget would be out of balance by "probably about $7 million dollars."
Councilwoman Price bluntly opposed changing the city's policy of using "reasonably conservative" revenue projections but [as a lawyer by profession] extemporaneously composed a verbal formula that would apply a changed policy to the FY18 budget without changing the underlying policy, at least for now.
Councilwoman Price:: I'm concerned about changing our policy because we want to make the budget numbers work for 2018 and this is the first time, all we've been hearing for the past few weeks is we're going to have a balanced budget in 2018 and unless I missed it nobody told me that balanced budget was coming as a result of a policy change in terms of how we're predicting revenue...When the city manager and others have been telling us we're going to have a balanced budget in 2018, I'm thinking, and this may be an error on my part, I'm assuming all things status quo in terms of how we've been anticipating revenue we're going to have a balanced budget. Now what I'm hearing we had to adjust the way we look at things in order to balance the budget. That seems a little less comforting to me...[O]ptimistic means hopeful. When it comes to having a fiduciary duty for 450,000 people, I'm hoping that we have something more than optimism to get us through...
Mr. Gross replied: "I think that what you describe is eminently do-able. It is consistent with what we actually did so that if Council chooses not to change the policy and we just say we went to 'expected' or 'reasonably optimistic'...that type of wording I think is accurate and we could use that and if Council chooses not to change the policy we can simply indicate that we deviated on this time and we'll see what happens, and as long as we disclose that I think that would be OK."
And Committee chair Mungo, and member Austin, voiced no disagreement with this.
Since at least July 1, Mayor Garcia has had city management's proposed FY18 budget in hand. By August 1, LB taxpayers should learn whether -- despite approving the "Measure A" (June 2016) Mayor/Council sought sales tax increase (that has left LB consumers now paying the highest sales tax rate among all CA cities) AND city management applying "reasonably optimistic" revenue projections contrary to stated City Council policy -- whether Mayor Garcia proposes to leave LB taxpayers without 191 police officers out of 208 that the City previously provided and without fire engines at Station 17, Station 1 (second Engine 101 for high rise/density coverage) and Station 18 that taxpayers previously had. With management projected deficits in FY19 and beyond, LB taxpayers could find themselves with current police, fire and other service levels as a "new normal" unless a City Council majority makes major changes in LB City Hall operations. Five of nine policy-setting Council incumbents (Gonzalez, Price, Mungo, Uranga, Richardson are currently seeking re-election in the April/June 2018 election cycle, along with LB's veto-wielding but non-voting Mayor.
At a March 14, 2017 study session opening the FY18 budget cycle, Budget Manager Lea Eriksen stated in a significant sentence that flew-by without audible Council attention (and with no Council approval vote in a non-voting study session) that management planned to apply a revenue projection in FY18 that "also includes more optimistic insurance and revenue budgeting which will provide for more budgetary resources but also provides for additional budgetary risk and less one-time funds." A Power Point slide also listed bullet points (among "Other Key Projection Assumptions") that included "More optimistic insurance and revenue budgeting."
At the March 2017 study session, Mayor Garcia chose instead to focus attention -- at one point interrupting management's presentation and later boasting on social networks -- on what he said was the first time in many years that City Hall is entering a budget cycle without facing a project deficit (spending exceeding anticipated revenue.) This showed City Hall's fiscal discipline, Mayor Garcia told the public at the time.
Mayor Garcia could release the proposed budget now, but hasn't; the last legal date for him to do so is Aug. 1, by which time the full Council (and the public) will have just weeks to review and hold public meetings on whether to accept it, tweak it or significantly change what management proposes and the Mayor recommends. Months ago, the Council chose to cancel its Aug. 1 working meeting for "national night out" [a neighborhood socializing event portrayed as public safety-oriented]. With the intervening Labor Day holiday, just weeks remain before a Sept. 15 deadline by which a Council majority (subject to a Mayoral veto that six Councilmembers can override) must vote on a FY18 budget.
City management has publicly acknowledged that FY19 [i.e. after the 2018 election cycle] will include a deficit that management currently expects to reach $7.7 million [unclear applying what type of revenue projections] and has said the lead-time gives management an opportunity to develop strategies to reduce the gap [with taxpayer service-level impacts and/or fee increases not discussed for now.] Within the past year, the Council has voted to approve new contracts providing raises for nearly all City Hall employee groups (including police, fire and city management) although management has acknowledged that the City's biggest budget-deficit-driver remains pension costs.
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