News in Depth/Perspective
Budget Beans Spill Thanks to Councilwoman Kell's Candor:
5th District Rep. Reveals City Auditor Burroughs Held Closed Door Meeting & Spoke Of Possible Bankruptcy If Council Doesn't Spend Less; We Post Transcript of Colloquy
Council-Hired Budget Consultant Len Wood Says LB Is In "Crisis" State, Could Reach "Implosion" State If Council Doesn't Act; Consultant Notes Council Increased Spending In FY 2002
Burroughs Sees Bright Future If Council Acts As Mgt. Proposes
We post extended transcript excerpts
(March 24, 2003) -- Less than a year after much of LB's establishment said City Hall was "on the right track" and voters re-elected Mayor Beverly O'Neill (in a write-in campaign) and City Auditor Gary Burroughs (uncontested), 5th district Councilwoman Jackie Kell revealed at the March 18 Council meeting that Mr. Burroughs had held recent closed door meetings with Councilmembers in which he indicated the City could face bankruptcy unless it halts current spending practices and reduces city staff levels.
We post extended transcript excerpts (unofficial, prepared by us) of salient parts of the Council item below.
City Auditor Burroughs didn't deny Councilwoman Kell's disclosure...but tried hard to avoid repeating the "B" word -- bankruptcy -- eventually referring to it as "quote-unquote" bankruptcy. While ad libbing a responding to Councilwoman Kell's revelation, Mr. Burroughs remained composed but did not appear at ease.
Things began on an awkward note when Mr. Burroughs admitted at the outset that he had held closed door briefing sessions for Councilmembers before the public Council session:
Councilwoman Richardson: Is this the same report that you gave us in our budget workshops that I should refer to, or has it changed in any way?
Mayor O'Neill: Is this the same presentation as you have given to the Council in their small groups?
Mr. Burroughs: Yes, yes it is Laura.
Councilwoman Richardson: Thank you.
Mr. Burroughs: This report deals with several things. Some members, in fact I think most all members of the Council, have seen this in some form...
Mr. Burroughs' Council presentation consisted of slides in a power point presentation without apparent reference to text. He subsequently posted his slides on a City Hall web page
Mr. Burroughs began by displaying a chart previously seen during a Council meeting several years ago while some taxpayers were supporting a petition-initiated measure that would gradually halve LB's then-10% utility tax over five years. Burroughs' chart purported to show annual amounts by which City Hall revenue would decline if a petition initiated utility tax cut measure supported by Norm Ryan and others (Prop J) became law. (Voters enacted the measure by a roughly 70% margin in November 2000.)
[LBReport.com comment: The deficit results from Council spending at a pace exceeding City revenue. Mr. Burroughs' chart shows the Council knew or should have known revenue would be gradually reduced. If the Council failed to reduce spending accordingly, the resulting deficit is the Council's fault, not the voters'.]
Mr. Burroughs' presentation was followed by Council colloquy. Not one Councilmember mentioned Burroughs' reference to the possibility of "bankruptcy" if the Council fails to cut spending...until Councilwoman Jackie Kell did:
|Councilwoman Kell: All of the Councilmembers have spent time in workshops with our Auditor, Gary Burroughs. We spent more than two hours on Thursday [March 13], late Thursday. Mr. Burroughs, when you got through, it was very ominous in that I read your bottom line, you were saying to the Councilmembers, bottom line: you must spend less money and have less employees and you must take these steps or, I believe you said, the consequences could be bankruptcy.|
Source: HTTV Channel 21
Would you like to...
City Auditor Burroughs: (interjecting) elaborate on that a little bit?
Councilwoman Kell: ...a little bit, because that, it's so serious this time, these budget problems, and I think in the past, Councils have always tacked things together, cut and paste the budget and put something together and we got through it with reserves and that kind of thing. But this time, that is not going to happen unless we take some very, well, drastic steps.
|City Auditor Burroughs: I think what allowed all of us to be a little more complacent if you will, I hate to use that term, but clearly over the past several years when we had a $45 million savings in PERS [Public Employee Retirement System]...when we had a $32 million check back from PERS in addition to that, and we had a windfall of over $20 million or thereabouts in the franchise fee, and if you add that all up that's $300-$400 million dollars.|
Source: HTTV Channel 21
I think we all believed that that's very probably that most of that ends in the very near term. What that means is is that the City Manager's position is absolutely correct, that we can no longer go forward and deal with the quote-unquote "structural deficits" in our budget and in our actual numbers.
If we do that, first we kind of get tight and we run our of surpluses, we run out of reserves. The next thing that happens is is that we begin to get ourselves in a position where we can't pay bills, can't make our payrolls. We get in positions where people other than you as elected officials control and run this city.
And if we look at what's happened in some other cities, we frankly could put ourselves in a position where the legal system takes over and we are quote-unquote "bankrupt" and that means your decisionmaking process and flexibility and authority levels are all diminished and other people will make those decisions about running City Hall and running the City of Long Beach.
I don't think any of us want that or desire that. I think all of you, from my discussions with you, understand that responsibility and also understand that while you're in office, it's not going to happen on your watch and that you're going to make those changes that are necessary so that we don't put ourselves in that position.
There were two or three of you, in fact it was a slide that I debated for some time, about making a new slide, I think Jackie you probably asked for it, and that was a slide that depicted if you will the Draconian kind of things that could happen.
Let me just say this: If we don't fix this problem and address it, we could put ourselves in a very negative position and you actually at its far worst case put ourselves in a position where the courts are running this city or at least determining how we spend our resources.
And surely not all of us want that to happen, none of us want that to happen.
Burroughs then shifted into a booster-style defense of City Hall's actions, voicing confidence in the city's future, premised on the Council changing its current spending practices.
City Auditor Burroughs: Let me make another comment, because I think this is important. As an elected official in this city, and I'm proud to be an elected official in this city, and I'm proud to be a part of this governing body and to the role that I play, this is a city, we have a lot of positive things that we should be conscious of and understand what's about to happen here in downtown Long Beach.
I mean when I think in terms of three or four thousand new residents being in downtown Long Beach on a very near term, when I think about the modifications that are being made in the planning process, and the due diligence that's going to take place on the part of this City Council, when I think about some of the responses that I get from members on this Council...when I think about a lot of the positive things that are going on in this city, and by the way, just so we know this, when I talk to my counterparts in the other parts of this country...let me just tell you, this is not unique to the city of Long Beach that we're really kind of in this position...
...And we probably had some reserves that most cities don't have, and thank goodness we had 'em, or we'd be in a heck of lot worse shape than we're in today. So there are some bad things that could happen, but I think while we're here they're not going to.
Mayor O'Neill moved swiftly to bring a different speaker to the podium. He delivered a straightforward presentation that didn't pull punches.
Len Wood, a consultant recently hired by the City Council to provide budget advice, found it noteworthy that the Council had increased spending in FY 2002 (Oct 1/01-Sept 30/02) over what had been proposed...and used a chart to illustrate the point:
Mr. Wood: "Another [chart], which is a little bit unusual, you see your proposed budget and your adopted budget, there has been a gap, in effect, moneys have been added to the proposed budget. And this is somewhat unusual. Usually the proposed budget is reduced rather than increased. So in this case, that has helped create a little bit of the problem."
[Comment: LBReport.com has previously noted that the Council voted after Sept. 11/01 to increase the proposed FY 02...including a $1 million increase for the "Public Corp. for the Arts." This was during the run-up to the April/June 2002 LB city elections. City management had previously -- and publicly -- agendized memoranda warning of a ballooning deficit, reported by LBReport.com but not seriously discussed by the Council. After the elections, the Council voted (without serious discussion) to boost pensions for city employees (which City Hall later defended on grounds it saved money in the short term while admittedly raising longer term costs). In August, 2002, elected officials held a news conference to tell the public that LB was facing a budget crisis.]
Pointing to a chart indicating actual budget increases over the years, Mr. Wood noted, "I think it becomes very apparent that the increases in 2002 were the ones that really were substantial."
[LBReport.com is obtaining a copy of this chart and will post it here. Check back with this page, click refresh or reload on your browser.]
Mr. Wood also noted, "I looked at per capita General Fund expenditures and compared them to revenues and adjusted for inflation. It shows a couple of things here. Number one, your expenditures are at a higher level per capita, but also, if you notice it, your per capita expenditures as well as your
per capita revenues have actually been dropping [when adjusted for inflation], so you're actually spending less [in dollars adjusted for inflation] per person than you had previously and you're raising less in revenues."
[LBReport.com comment: Mr. Wood deserves credit for making this insightful, profound point.]
Mr. Wood said the City of LB had already reached what he called a "crisis state" and could move into what he called an "implosion" state -- including bankruptcy -- unless the Council enacts spending reductions, revenue increases, or some combination of both.
Mr. Wood indicated he was preparing a written report for the City Council and asked that his verbal report be considered an "interim report." Some excerpts:
Mr. Wood: I have developed a sort of a four stage model that talks about cities and their financial condition. [Indicates cities begin with Equilibrium (healthy) state, where revenues exceed expenditures.] Some cities never leave this Equilibrium state, and the minute that they do have an imbalance coming, what they do is they make adjustments in their finances.
Some don't, and I think this is a key point. They go into phase two, what I call the Problem state...we have the crossover point where...expenditures actually cross your revenue line. When cities get into this situation, they'll usually go to one time funds...to kind of balance that.
If they don't right this situation, they go into what we call the Crisis state. This is where we have made optimistic assumptions, whatever, we've used one time money. We're in what we call the Crisis state, and this is where I think the City of Long Beach is right now.
We do have a gap, that gap right there is growing, prior to your approach here, it was around $50 million, somewhere in that area. It's still possible to solve the problem. Now some cities that don't solve the problem and deal with this gap, they go to what I call the Implosion state, and there are good examples across the country, and this goes back to the point made by [Councilwoman] Jackie [Kell], and that is that the city, if it does not deal with the problem, will be facing bankruptcy.
Cities like Bridgeport, Washington, D.C., Miami, fell into the problem of not dealing with their structural imbalance. By not doing that, what happened is the state came in (in each of those situations except for Washington, D.C...) and they took over and set up an Oversight Board, and the same decisions that the Councils could have made there, whether that is to roll back employee salaries, whether that is to contract out, whether that is to raise fees, those things were not done, this is what the Oversight Board came in and did, so it is a serious situation, it is something to be dealt with.
Neither Burroughs nor Wood said the City was in imminent financial peril. Both indicated that City Hall could bring itself out of its current fiscal crisis. However, both strongly advised the Council to take prompt action to change its current spending practices.
Mr. Burroughs specifically urged the Council to adopt city management's three year budget strategy. A vote on this is scheduled for the March 25 City Council meeting.
Prior to Councilwoman Kell's revelation, Councilman Dennis Carroll told Mr. Burroughs:
Councilman Carroll:...You were on the Mayor's Budget Advisory Committee...and one of the things I heard from them, right from the beginnning, was that they were getting cooperation from your office and the City Manager's office about everything that many of our citizens felt were secret, and they would never get to, and where's the real set of books and all that.
And when I started hearing from the Mayor's Budget Advisory Committee, every question we ask about every piece of data we seek, we are given it, it suggested to me the level of confidence about the city's finances was beginning to rise.
And I think now, that phrase of transparency and openness is just about where we want it to be. The public has weighed in, they have been given access to what we know...
As city employee pensions, Councilman Carroll said:
Councilman Carroll: I think it's important for us to know from the taxpayers' point of view, and in my district I have people who lost their pensions because their company went bust, they lost their jobs, they were downsized, they were rightsized, and when they look at the city employees and the kind of stability that I like to see in a government, which means stable government employees, many of 'em feel that that in and of itself is worth 50% of our pay.
That is, if we are paid commensurate with the private sector and given the kind of job security that I think government employees should have and it lends stability to our city, there is an understandable disconnect between those persons and, when they see the kind of pension programs that city employees have, the kind of health programs the city employees have.
And I think it is our job as you pointed out to educate everyone in this community that we are getting value for the taxpayers. The moneys the taxpayers pay we are getting benefit and we're going to get more. The notion is very clear to me at least that the taxpayers want a downsized and more efficient city government.
Vice Mayor Frank Colonna, who in September 2001 led Council efforts to spend $1 million more (above $750,000 proposed) for the Public Corporation for the Arts in FY 2002, indicated he believes City Hall will solve its current problems, LB remains robust and its financial base is strong.