News / Perspective

Follow-Up: Who Knew, And When Did They Know, Proposed FY18 Budget Used Figures Contrary To City Financial Policy That Conceal Roughly $7 Mil FY18 Budget Deficit? is reader and advertiser supported. Support independent news in LB similar to the way people support NPR and PBS stations. We're not non-profit so it's not tax deductible but $49.95 (less than an annual dollar a week) helps keep us online.
(July 29, 2017, 11:10 a.m.) -- Using figures provided by city management, Mayor Robert Garcia emphasized in March, and reiterated via social networks in April, that the City is entering its FY18 budget cycle without a projected deficit (current spending exceeding projected revenue) when in truth city management -- for reasons currently unclear -- didn't follow City financial policy in preparing a proposed FY18 budget...and if it had done so, the City's FY18 budget would show a roughly $7 million deficit.

The jaw-dropping admission -- made publicly on July 25 by city management, not Mayor Garcia -- comes as the incumbent Mayor and five Councilmembers seek re-election in April 2018 (and June if runoffs are required.)

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As previously reported (first, again) by, city management acknowledged at the July 25 meeting of the City Council's Budget Oversight Committee (Mungo, Price, Austin) that instead of using Council-directed "reasonably conservative" projections of expected revenue in keeping with City financial policy, it instead prepared a FY18 budget using "reasonably optimistic" revenue projections.

Management's action, which wasn't authorized by voted Council approval, begat a supposedly balanced budget that concealed a roughly $7 million deficit under current City financial policy that might only surface -- with taxpayer service cuts, increased "fees" or both -- after the Mayor and Council incumbents were safely re-elected. City management and LB's Mayor have no legal power to change City financial policies, which can only be changed with publicly voted approval by LB's City Council.



During a March 14, 2017 Council study session opening FY18 budget proceedings, Assistant Finance Director Lea Eriksen stated: "So, when you pull together Measure A, revenue growth and our initial budget balancing solutions, the good news is that FY18 is balanced, so there is no estimated budget shortfall projected for FY18."

Mayor Garcia took the unusual step of interrupting management's presentation to say: "I just think it's important for the Council, and anyone in the public. I know I've been here as a Councilmember and as Mayor and we've never begun a budget cycle without a deficit. And certainly, I know I asked Mr. West if we had started a cycle without a deficit as long as you've been here, and this is our first year. Is that correct? [City Manager West silently indicates yes]...We're entering this budget season with the budget already balanced, which is a huge win."

But earlier in management's presentation, Ms. Eriksen made a statement that Mayor Garcia didn't emphasize: that in preparing the FY18 budget, city management would use "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." She also displayed a Power Point slide with bullet points (under the heading "Other Key Projection Assumptions") that mentioned "More optimistic insurance and revenue budgeting."

[Ms. Eriksen also telegraphed that management's proposed FY18 budget "assumes no new costs or services are added." LB taxpayers will find out what that means on Monday July 31, when Mayor Garcia releases the proposed FY18 budget with his recommended actions.]

On March 14, there was no Mayor or Council discussion of what "more optimistic insurance and revenue budgeting" meant. There was no voted Council action (during the non-voting study session) to change the City's financial policy directing use of "reasonably conservative" revenue projections. It's currently unclear at whose direction if any, or with whose knowledge and approval if any, city budget management prepared a FY18 budget contrary to the City's financial policy on this matter.

On April 21 (just days before a downtown campaign contribution soliciting event), Garcia used his personal Twitter page (targeting roughly 17,000 followers) to spread the "no deficit" claim, and added "That's fiscal responsibility."

Someone inside City Hall then re-tweeted Garcia's Tweet on the City's taxpayer-operated Twitter page (targeting roughly 78,000 followers), spreading his message further:


At the July 25 Budget Oversight Committee meeting (during a Committee review of the city's financial policies), Director of Financial Management, John Gross, candidly acknowledged that management had prepared its proposed FY18 budget using "reasonably optimistic" revenue projections instead of the City's financial policy directing "reasonably conservative" projections. Mr. 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 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 continued:

"The problem with it [making such a change], 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."

Councilwoman Mungo voiced discomfort with changing the city's stated policy. Councilman Austin likewise voiced his disapproval of the change. Councilwoman Price said, "This is not a policy change that I would feel comfortable with" but -- as a lawyer by profession -- she 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: So maybe we could say something like "reasonably expected," "reasonably anticipated," you know something like that "anticipated based on data," you know, something like that. What I would like to do is leave the "reasonably conservative" language in there but maybe for 2018 we note that there are some major changed circumstances that have taken place in terms of our revenue in the city. We have several new revenue sources that have come in as a result of tax measures. We have a real estate market that's taking a different turn. We've gotten some change in circumstances that we did not have in 2017 and many years before that so perhaps we can say our revenue projections were not done with the standard policy, however, based on the recent changes in circumstance that we've seen in our economic profile, we believe that these are realistic numbers.

Now if that proves not to be true, then in 2019 we can go to changing the actual policy. But I'm hesitant to change the actual policy because this could be, if we're going to have a deficit all things being considered equal, then I think we should know that and I think we should have that conversation, because as you all know, sometimes people's priorities for how they want to service the city and the residents come with a price tag and if that's the case I don't want us to be reasonably optimistic, I want us to be reasonably conservative.

So I think if we can keep the policy and maybe just note that for 2018, because we have a wide variety of different sources of revenue coming in, we've gone from a departure in the standard policy but moving forward we'll consider an actual change to the policy, I would be comfortable with that.

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.

Under LB's City Charter, Mayor Garcia was scheduled to receive management's proposed FY 18 budget on July 1. For nearly a month (if not months earlier in March or April) Garcia has said nothing publicly about the proposed budget not reflecting current City financial policy and now carrying a dubious "no deficit" claim.

On Monday July 31, Mayor Garcia is scheduled to release the management-prepared FY18 budget with his recommendations for Council action. At that time, he might:

  • "Double-down" and defend use of a FY18 budget prepared contrary to conservative City financial policy

  • Respect current City financial policy and recommend Council action(s) to address a de facto roughly $7 million deficit

  • Recommend that the Council vote to change current City conservative financial policy (which management recommended in the July 25 Budget Oversight Committee meeting) acknowledging the risk of a FY18 deficit (requiring mid-year cuts and/or increased "fees") in addition to an already anticipated $7.7 million deficit expected one year from now entering FY19.

  • Follow an extemporaneous suggestion by Budget Oversight Committee member/Councilwoman Suzie Price to leave the City-stated conservative financial policy in place but insert text in the FY18 budget document reciting that "changed circumstances" or the like justify "reasonable expectations" of additional revenue. Councilmembers Mungo and Austin, didn't object to this and neither did city management. The result would leave a potential $7 million deficit (spending exceeding revenue) to surface after 2018 elections.
  • Propose other action(s)



By July 31, LB taxpayers will also learn if -- 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 "reasonably optimistic" revenue projections contrary to stated City Council policy -- Mayor Garcia recommends leaving 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.


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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