Deja Vu All Over Again

The City of Salinas has a General Fund budget very similar to ours -- i.e. very low revenue per capita. I thought I'd share the following article from their local newspaper. It looks like they are taking many of the same measures that we did (including an identically sized budget committe) -- except they are doing at a painful year later than us!

Here's the story (click here for link):

Comparing the city to a patient who is "flatlining" in an intensive care unit, Mayor Dennis Donohue on Monday outlined the causes of Salinas' financial crisis and the coming steps to revive it.

In his State of the Budget address at the City Hall Rotunda, the mayor said the city is identifying $9.6 million in cuts to services, staff and salaries to balance its next budget.

For the past decade, Donohue said, Salinas has been "resuscitated under Code Blue time and again," beginning with the financial crisis that led to the City Council's decision, before Measure V came along, to close libraries.

"[T]he city as patient is flatlining in the budget, and it is unlikely even the EMT's can get there in time to save the patient for yet another life," Donohue said.

But even as he predicted another shortfall next year and decried the city's repeated returns to crisis-management mode, Donohue said the patient would not die and promised to help transform government "so that we don't have to call Code Blue every year."

The first step, he said, comes Feb. 2 with the appointment of a blue ribbon budget review committee to recommend cuts and revenue enhancements to the council. The committee will be comprised of up to 15 members from various sources, including city staff; the independent budget review committee; the planning and permit task force; the Measure V oversight committee; neighborhood groups; and members of the public, including participants in the Saving Salinas forum at TheCalifornian.com.

The committee will give a final report May 6.

On March 2, the city's first layoff notices will go out after a council review of its budget-balancing plan. The notices will be tentative until closer to the July 1 start of the fiscal year. The current plan calls for about 68 layoffs across departments. The city plans to approach its unions for new concessions on top of the $12 million negotiated in the past two years.

Donohue defended the 2007 pay raises to police, fire and other employees that were identified as a "possible cause" of the city's structural deficit in a report last week from the nine-member independent budget-review committee.

"We couldn't get enough officers, or those we got left town really fast, and we were constantly chasing our tail and raising our overtime and training costs," he said. "We attract locally, but we lose to the Bay Area. The council made a decision ... that we will be competitive to the tri-county area. That's reasonable.

"You can't squeeze blood out of a turnip. The low end of the salary spectrum really is not going to get you to a significant place .... Even if you got some additional concessions, we do not break the groundhog cycle with salary concessions," he said, referring to the movie "Groundhog Day," in which a man relives an unpleasant day over and over.

In 2007, the council approved raises of 12 percent for Salinas firefighters and 25 percent for police officers and management, spread out over two to two-and-a-half years; and 18 percent for 350 other employees.

What would end the city's cyclical financial crises? Donohue identified the "root cause" as insufficient revenue, comparing the $485 in per capita revenue for Salinas to $552 in Seaside; $581 in Watsonville; $634 in Gilroy; and $1,832 in Monterey.

"Our tax base continues to shrink, but the demand for services continues to grow," he said. "If you want a different outcome on the gang issue, we're going to have to make a major investment."

He declined to say whether that investment should take the shape of a tax increase.
"We will need to engage in a full-scale community engagement process [on the investment], even the equivalent of our own Salinas constitutional convention," Donohue said

Council Workshop

City Council Planning Workshop: The workshop held on Monday, January 25, provided a much-needed opportunity for staff, the City Council and the public to discuss key items affecting the City. There was much discussion about the budget situations for both the City and the State. Staff was also able to share with Council specifics about new development occurring in the community, and new plans for infrastructure financing to accommodate additional development. Staff hopes to have these meetings with Council each year.

We'll be blogging in more detail in the future about many of the subjects covered at the workshop.

Tracy Police Avoids Layoffs

From the Tracy Press:

Officers give up scheduled raise to save jobs
by TP staff
Jan 18, 2010

The Tracy police officers’ union voted to forego a raise this summer to save several jobs and to change their retirement plan for new employees to save the city money.

The change to the police officers contract comes after a couple of months of talks between union heads and city administrators, who had announced their intention to lay off six officers, two sergeants, and one captain.Those cuts are no longer necessary though.

Officers were scheduled to get a 5-percent pay hike in July on top of the 5-percent raise they received last summer, a wage increase that appeared to cause ripples of discontent as other city workers were laid off and forced to take unpaid days off.

A majority of the 85-member union also voted to cut retirement benefits for new officers that are hired. Instead of being able to retire with up to 90-percent of their salary at age 50, new officers will be able to retire with up to 90 percent of their salary at age 55, the same retirement package that Tracy firefighters have.

The union also agreed to extend their contract through fiscal year 2011-12 with no extra benefits.

City managers are trying to save money in the face of a projected $9 million budget deficit. Tracy pays 100 percent of the retirement costs for all its workers, which costs the city about $9 million a year. It also pays $1,200 per month per employee for health insurance, an annual $6.2 million cost, and gives each full-time employee a minimum of 37 paid days off a year, including sick leave.

The changes to the police officers’ contract “balances the recognized public safety concerns while being sensitive to the City’s fiscal situation and the community’s economic hardships,” said Sgt. Alex Neicu in a press release on behalf of the union.City administrators seemed pleased as well.“I think it’s a win-win for everyone,” said Finance Director Zane Johnston. “The raise was huge, because that’s a lot of money.”

Employee Ratios

The Sacramento Bee had an interesting editorial last Sunday addressing the historical ratio of state workers per 1000 residents (click here). The editorial noted that over the past 50 years, the number of state workers has consistently been at a level of about 9 workers per 1000 residents. They seemed to defend the current staffing ratio as reasonable.

First of all, the fact that the state has nearly twice as many workers per captia as local government is appalling. Given that the state has delegated the majority of its responsibilities to state and county government, I'm still trying to determine how they justify 358,000 workers. In fact, given the state's skill in shifting its responsiblity to the rest of us, they should have far fewer workers per resident than they had 50 years ago. In addition, I would argue that many of the agencies are now automated--i.e. -- very few of us actually go into DMV to re-register our car--we do it online without any human helping us out.

Hopefully, as resources get tighter and tighter at the state level, there will finally be a day of reckoning when the majority of jobs are eliminated that are duplicative of responsibilities already delegated to other levels of government.

More on the State Budget

First for the semi-good news, apparently the state is being realistic in its future budget assumptions. Here is a report from the League of Cities fiscal expert, Michael Coleman:

Down deep in the text and tables of the Governor’s proposed budget released Friday are some revenue estimates and forecasts, some of which also apply to key city revenues. Although the growth patterns of local sales taxes and property taxes depend greatly on the particular economic situation within a jurisdiction, the statewide trends are noteworthy. The State Department of Finance (DOF) is estimating that the assessed value (AV) of taxable real property will decrease 2.9 percent from the FY2008-09 to the current FY2009-10 fiscal year.

DOF forecasts that AV will fall further by another 2.2 percent from FY2009-10 to FY20010-11. As for sales tax revenues, the Governor’s proposal estimates that final taxable sales figures will show a decrease of 12.8 percent for the FY2008-09 over the prior year and a further decrease of 7.5 percent in the current FY2009-10 year. Sensing the beginning of a turnaround, DOF projects a modest increase of 6.3 percent in statewide taxable sales for FY2010-11.

The real question is whether or not the legislature sticks to these numbers when they are trying to complete the budget on the eve of this fall's election.

The grim and insidious part of the budget is chronicled in today's Sac Bee (click here). While this sleight of hand didn't work last year, looks like the Governor is going to give it another shot. Here's how the Bee describes it:

California drivers could save a dollar and change each visit to the gas pump under a tax swap proposed by Gov. Arnold Schwarzenegger.

In an effort to free up money to balance the state budget, the governor wants to reduce the sales tax motorists pay on gas purchases while increasing the gas excise tax, also paid at the pump.

Administration officials say the switch would help California close a $19.9 billion budget gap by nullifying laws that reserve most of the gas-pump sales tax for transit agencies.

That would free up anywhere from a few hundred million dollars to more than a billion dollars for the state general fund. The total amount is disputed by the administration and transit officials.

State finance spokesman H.D. Palmer said the plan has the added benefit of saving motorists nearly $1 billion at the pump in the coming year.

"That's one of the pleasant aspects," Palmer said.

Longer-term, however, the governor's plan calls for increasing the gas excise tax annually for the next 10 years from its current 18 cents to 34 cents per gallon by 2020.

Transit officials, meanwhile, are livid. They're calling it a "bait and switch" move to avoid making good on voter-approved funding for local bus service and rail service.

School advocates also are troubled. The tax swap would allow the Legislature to reduce funding to public schools this year by $800 million, the Legislative Analyst's Office noted.

That represents a 1.6 percent reduction of Proposition 98-mandated school funding.

While the proposal doesn't have a huge impact locally, who knows--this bait and switch could end up impacting more of our road funds as well. More importantly, it is symbolic of the many games being played by the state to attempt to survive another budget cycle with gimmicks instead of hard decisions.

State Budget Blues

I wasn't going to talk about the Governor's budget proposal, but I finally decided it was important at least note that it isn't really even worth analyzing. The final state budget will not even remotely resemble the document submitted last week.

As most of you have read by now, the 2010-2011 budget is banking on $7 billion from the federal government. The Governor went out of his way to basically demand these dollars from our federal officials. This has not gone over well with either of our U.S. Senators or any of our key reps in the House. Here's an excerpt from an article in the Los Angeles Times (click here):

"California's budget crisis was created in Sacramento, not Washington," Sen. Dianne Feinstein shot back. "These problems are not going away until there is wholesale reform of the state's budget process. . . .

Pointing fingers is not constructive."Sen. Barbara Boxer called a teleconference with reporters to rebut Schwarzenegger's assertion that California gets back only 78 cents for every dollar it sends Washington in taxes. That figure is several years old, she contended; Washington currently sends back $1.45.

She accused the governor of "threatening people" with his "trigger" plan.

In fact, his lack of decorum may have guaranteed that we don't get ANY addtional funds from the feds.

Other parts of the plan are just as fantastic. As Dan Walters noted in the Sacramento Bee (click here):

Arnold Schwarzenegger achieved fame and fortune by starring in celluloid fantasies, so it may be fitting that his final state budget proposal would be so disconnected from economic and political reality.

With the state still facing huge deficits, the governor bases his 2010-11 budget on such fanciful elements as persuading the federal government to cough up an extra $7 billion, asking voters to reverse themselves and shift money from protected pots for mental health and children's programs, overhauling transportation financing, and persuading state employee unions to accept pay cuts and increases in workers' pension and health care costs.

For those of us who live in the real world, we realize that he can't unilaterally cut employee compensation plans and is unlikely to find more "efficiences" in other programs. At some point, the legislature is going to be faced with making hard choices, but probably not in an election year. The legislature will likely go through one last round of number cooking to make it look like they've balanced the budget, attempt to take what little is left to take from local government and leave it to the next legislature to clean up their mess.

That is when it is going to get really ugly. The best we can do at the local level is do what we can to protect our local revenues, and hope that the state doesn't take the rest of us down with it.

Budget Woes

Now that we are at the midpoint of the fiscal year, many cities are beginning to revisit the revenue projections made last spring. Many cities grossly underestimated the impact the great recession would have on sales tax revenues--they naively believed that we'd already seen the worst of the recession's impact in 09-10.

Here in Manteca, we knew better and waited until late summer to make our budget projections--and knew that huge cuts in employee compensation were needed to make the budget work. The following articles chronicle the tale of two cities (both very sales tax dependent) that decided to avoid the hard choices in the budget and hope for the best.

In Escondido, they now are looking at cutting ten percent out of the remainder of this year's budget--not an easy task. As many as 100 layoffs could be required. Click here for the entire article.

In Santa Rosa, they did cut about 20 percent of their budget going into this year, but now need to cut another $10 million (10 percent) to make it through the year. They've got a list of 98 items that they are looking to cut. Click here for the entire article and a link to the staff report outlining the 98 cuts.

While most of the articles focus on a city's General Fund, in Tracy the solid waste account is now in the red. As most of you know, Manteca reduced compensation for non-General Fund accounts as well since the recession impacts enterprise revenues as well. The article notes:

Kevin Tobeck, the public works director, said the problem his department faces is threefold. Few houses have been built in the past few years, so there has been no construction debris to discard. Tracy is also home to a swarm of empty, foreclosed houses, where no garbage is collected so no bills are sent out, he said.“We went from lots of building to virtually none,” he said.

Click here for the enitre article.

Labor Impasse in Lompoc

Here in Manteca, we have the good fortune of not having any expiring labor contracts during these uncertain economic times. Most of the cities currently renewing contracts are in contentious negotiations, as it is difficult to put together new agreements when the economy is still struggling and the state continues to consider more takeaways of local government revenues.

Here's the latest from Lompoc, which is wrapping labor contracts with all of their bargaining groups:

More than a year of negotiations has ended in an impasse between the city of Lompoc and its police officers.

As a result, during the City Council meeting tonight, city staff will recommend imposing several changes upon employees of the police department, including a 5 percent pay cut and reductions in health-care benefits.

“All those terms and conditions are exactly the same as agreed to by the Teamsters, the firefighters, and every other employee of the city,” Human Resources Director William Yanonis said.

The fruitless negotiations between the city and the police association had included 12 formal meetings, eight contract rejections, and a round of mediation with state officials, said Yanonis. He said the specifics about the negotiation impasse would first be reported to the City Council during a closed session meeting today, before his public report during the public meeting. The meeting begins at 7 p.m.

Click here for the entire article.

As I've noted many times, Manteca's issues are everybody's issues these days. While it is easier to blame our budget problems on local decisions and local conditions, this is a worldwide recession which has been particularly brutal to just about every government agency in this country and beyond. We have to make decisions at the local level as to how we adjust, but we can do very little at the local level to change our economic circumstances--we just have to change how we do business to deal with our economic realities.

There continues to be a number of cities that believe they can tax themselves out of this budget crisis. Santa Rosa is the latest city to float revenue enhancements as a way to fix their budget (click here for article). I've yet to find a city that has been able to convince their City Council to even ask the electorate for more money right now. I'm sure they will find out that their local businesses and residents are already stretched too thin, and a tax increase would not be welcome--we are just going to be expected to tighten our belt, just like everybody else.

Ten Events That Shaped State-Local Budget Relations

The State LAO (Legislative Analyst's Office) recently published a report that chronicled the twisted relationship between state and local revenues. Entitled "The Ten Events that Shaped State-Local Fiscal Relations" (click here) it chronicles all of the ballot measures and other actions that help to bring us to the mess we face today.

Here is the "California Special Districts Association (CSDA)" take on the report and related state committee discussions:

It is no secret that the state and local government have not had the best friendship over the years. Last week, the Senate and Assembly Select Committee on Improving State Government examined the twisted relationship between the state and local government and looked at ways to improve both the relationship and ways the state can contribute to local fiscal stability. CSDA had the chance to attend the committee hearing and testify on behalf of its members.

The Legislative Analyst’s Office (LAO) reported on the history that shaped California’s state and local fiscal relationship. Read the report here.

Meanwhile, a panel of local government experts told the committee that local governments do not have local fiscal stability because the state shifts, takes and borrows local revenues which creates an environment of uncertainty for locals, as evidenced by ongoing ERAF shifts and this year’s suspension of Proposition 1A. This coming year will be no different as the state faces an over $20 billion budget deficit and the governor must produce a balanced budget proposal by January 10, 2010, that will no doubt include more borrowing and accounting gimmicks.

In addition to keeping local revenues local, CSDA asked the committee to give local officials the tools, and the flexibility to decide which tools to use, to be able to get local projects delivered efficiently and effectively, like expanding the use of public private partnerships and giving special districts the authority to use design-build contracting as appropriate.

The Select Committee on Improving State Government plans to hold one last hearing on January 12, 2010, where the committee will look at the suggestions from past hearings and decide what actions, if any, to take.

City Offices Closed

Just a reminder:

City offices will be closed as a result of upcoming holidays and unpaid furloughs that will be taken by City employees. Offices will be closed from December 24 through January 3. There will be no "starts" or "stops" for water, sewer or garbage service during this time. Solid waste collection will remain on its regular schedule. Remember, routes scheduled for Christmas Day or New Year’s Day will be picked up on the following day.

This is the second round of furloughs this year. City offices were also closed the week of Thanksgiving. The furloughs saved the city nearly $1 million in labor costs in the current budget year as each employee's compensation has been reduced by 3.9 percent. Furloughs will likely continue for the next two budget years as we continue to find ways to cut costs in these tough economic times.

Latest from Sacramento

It is deja vu all over again in Sacramento as noted in today's Bee (link here):

Sure enough, the nonpartisan Legislative Analyst's Office estimated last month that the state now faces a $20.7 billion gap between what it can expect to collect in revenues and spend over the next 18 months.

That figure includes a $6.3 billion hole for the current fiscal year, which ends June 30, and a $14.4 billion deficit in the 2010-2011 year, which begins July 1.

"And as hard as $60 billion was, closing the (new) deficit is going to be even more challenging," said H.D. Palmer, spokesman for the governor's Department of Finance, "for three reasons."

First, Palmer said, the state can't rely on another $8 billion in federal stimulus money, as it did this year, although state officials hope at least some aid from Washington will show up.

"Second," he said, "some of the solutions this year were one-time in nature, and we made that very clear."

Those "one-time" solutions included budgeting maneuvers such as accelerating the collection of payroll taxes, and postponing the last payday of state workers in the fiscal year until the first day of the next fiscal year.

Third, Palmer said, the state is scraping bottom in cutting some major spending programs because of something called "maintenance of effort."

That basically means the federal government sets minimum standards for programs such as education and social services that states must meet to be eligible for federal funds.

For example, the state must have enough money available to pay 90 percent of doctors, pharmacies and other providers of Medi-Cal services within 90 days of being billed. If it doesn't, it risks the loss of billions of federal dollars.

"As we're putting the budget together, we're mindful we are close to the bottom in a number of areas" in terms of more cuts, Palmer said.

In addition to the trio of troubles he outlined, lawmakers and the governor also must confront some legal problems.

Among them are lawsuits challenging the legality of $489 million in budget vetoes the governor made in July; disputing his claimed right to furlough state workers; disputing the "borrowing" of $1.7 billion from local redevelopment agencies; and fighting a federal court order to reduce the prison population.

The state already lost one budget-related lawsuit, when an appeals court ruled that the state illegally grabbed about $1 billion in gas-tax money meant for local transportation issues, diverting it to pay California's general fund bills.

The legislative analyst's $21 billion budget gap forecast assumes that the state will prevail in the still-active court cases. If it doesn't, the hole gets deeper.

Even more from Sacramento...

Here's another interesting study hot off the press on the status of our state finances. There are a lot of future projects -- particularly road and levee construction -- that are dependent on the state's ability to issue bonds. Without the ability to issue bonds, tens of billions of dollars in future job generating infrastructure projects will be delayed indefinitely. Hopefully, the threat of default will force the state to get its house in order and make the same financial sacrifices that all other governments in the state of California are now making. The labor unions are likely the biggest obstacle in the way of the state staying liquid.

Here's the full story just issued by the Sac Bee:

The latest on California politics and government
December 16, 2009

Cal Lutheran forecast suggests state debt default likely
California faces at least another year of recession, and the state budget is so far upside down that it's now "more likely to default than not," on some of its debt, a new economic forecast from California Lutheran University's economists declares.

The director of Cal Lutheran's new Center for Economic Research and Forecasting, Bill Watkins, cites the state's budget problems, its high regulatory and operating costs and its deficit infrastructure as impediments to rapid recovery.

"We expect California's economy to continue to contract, slowly, through the first three quarters of 2010," the forecast says. "However, the contraction will be a bit less each quarter. By the fourth quarter, the state's gross product growth could be mildly positive. Output is then likely to slowly improve, but at an improving rate, through 2011.

"Job growth will lag economic activity. We don't expect to see California gain jobs until the second half of 2011. Consequently, unemployment will probably remain in double digits through 2011. Wages, by contrast, will likely show some gains almost immediately, but we don't expect to see California's average wage reach its pre-recession levels within the forecast horizon."

Despite the state's chronic fiscal woes and concerns about its mounting debt load, its top economic officials have consistently told investors and the public that the state is in no danger of defaulting on its bond payments, which by law have a high priority claim on the state's revenue streams.

Watkins and other members of the Cal Lutheran economic team migrated this year from the University of California, Santa Barbara's Economic Forecast Project. Data from the Cal Lutheran center can be purchased here.

More from Sacramento...

If the Britney story wasn't enough for you today, here's a nightcap from today's Sacramento Bee:

State's revenues running $1 billion below forecast
When Gov. Arnold Schwarzenegger and legislators fashioned the latest version of the state budget in July, they inserted a $3 billion fudge factor on revenues, cutting income expectations by that amount on the assumption that the economy was continuing to decline.

The latest monthly bulletin from the state Department of Finance, however, says that through the first five months of the 2009-10 fiscal year, revenues are running more than a billion dollars under even that lowered expectation.

Personal income, corporate income, sales and vehicle taxes all fellow below forecasts in November, the department said, but the bulletin found "encouraging" news on the employment front, with the first month-to-month increase in jobholders in 17 months. Even so, the unemployment rate increased due to growth in the labor force.

The revenue drop forms one component in the current forecast by the Legislature's budget analyst that the state faces a $6-plus billion deficit in the current budget and a $14-plus billion gap in the 2010-11 budget.

The Department of Finance report is available here.

More Good News

While we are still basking in the glory of the latest sales tax numbers, I thought I'd pass on some additional data that demonstrates how Manteca is outperforming our adjoining cities. The Council of Governments collects a Regional Transportation Fee (RTIF) based on the amount of development annually built in each San Joaquin County jurisdiction.

I recently received the annual report on RTIF collections. Obviously, collections were not exactly robust in 2008-2009. However, without Manteca, collections would have been downright depressing.

While Manteca comprises approximately ten percent of the county's population, we were responsible for nearly 40 percent of all the RTIF revenue collected county-wide. In addition, the report shows that out of 414 single family permits issued countywide in 2008-2009, 237 came from Manteca. Tracy, Ripon, Escalon and Lathrop issued a cumulative total of two residential building permits this past fiscal year. Manteca was also the home of nearly half the office development in the county during this time.

Since the RTIF program was put in place several years ago, Manteca has issued nearly half of all the single family building permits countywide and nearly half of all the retail and office permits in the county. With the spate of building activity this year, I expect Manteca to continue to be the county leader in most types of construction.

These numbers are yet another vindication for the economic development policies promoted by our City Council during this decade.

I've attached the data below regarding the program if you'd like to see the detail.

RTIF.pdf
rtif-2.pdf

Sales Tax Update - Good News

There is a small group of critics in this community who continue to crticize the City's pursuit of major sales tax producers over the past few years. The attached spreadsheet is proof positive that this pursuit was worth the trouble.

As nearly every other city in the state continues to experience double-digit percentage drops in sales tax revenue--Manteca was actually in the black this past quarter. Sales tax collections in the 3rd quarter of 2009 are actually 7.6% ahead of the same quarter last year. Year to date, we are only 1.2% behind last year's collections.

This small negative is great when you consider that the rest of San Joaquin County is down 20 percent from last year. Statewide, collections are down 17.8%.

I don't need to say any more, the numbers speak for themselves!

MANCRA%20%284%29.XLS

How we got into this budget mess...

Here are excerpts from an excellent piece in the Orange County Register (click here) that talks about a state budget being held hostage by our prison system. Here are some of the highlights from the article:

At a time when the state is struggling with its finances, the spiraling costs of California's focus on public safety have tied the hands of budget-makers who want to spend more on education and social services – and have given power, influence and wealth to the state's law enforcement community. Consider:

•California has the most costly state prisons in the nation. But the $8 billion a year system is plagued by inconsistent and outdated policies that have led to severe overcrowding and high recidivism. California's lock-em-up mentality gets criminals off the streets—but New York has cut crime far more by keeping fewer convicts in prison.

•State and local governments are buckling under the weight of generous public safety pensions, which were given to police, firefighters and prison guards without a sufficient examination of future costs. Pension costs have driven one city to bankruptcy and pushed others in that direction. Since the pensions were liberalized in 1999, state pension resources have fallen from a surplus of $32.8 billion to an unfunded actuarial liability of $35 billion last year, according to the state's own numbers.

•California has become more protective of its police than any state in the nation. Police and prison guard unions and other public safety lobbies have secured laws that keep the public from gaining access to police disciplinary records, making it almost impossible to publicly identify offending officers and determine whether they are being adequately punished.

Meanwhile, the services California provides to all its citizens are in trouble:
State spending on primary education is mediocre. A 2008 study by the nonpartisan Legislative Analyst's Office found that California spent $7,673 per K-12 student, 25th out of the nation's 50 states. Budget cuts this year could push the state further down the list.

California roads are among the worst in the nation. A 2009 study by the American Association of State Highway and Transportation Officials and TRIP, a national highway research group, rated 66 percent of California roads as mediocre to poor, fourth worst in the country.

California has the highest general sales tax in the nation, at 8.25 percent, with local governments permitted to levy an additional 1.5 percent. According to the nonpartisan Tax Foundation in Washington, D.C., California has the nation's fourth highest individual income tax rate and the highest corporate income tax rate in the West.

You can't blame public safety for these problems, but California would have more money at its disposal if it could more efficiently fight the war on crime.

While it is an extremely complicated discussion, the bottom line is that we spend far more than any other state in the union--and we still have plenty of crime. It is unfortunate that there isn't more intelligent discusssion about finding more cost-effective ways to reduce crime.

The State strikes again!

The State budget crisis may impact the City’s recycling education program. We have historically received approximately $17,000 for the CRV value of the bottles and cans that are recycled through our curbside recycling program. The State has taken most of the funds allocated for this program to use for other purposes, and the City has been informed that we will only receive approximately $850 this year. The City historically used these funds to purchase bottle/can recycling containers for schools, classrooms, cafeterias and apartment complexes, printing recycling brochures, and to purchase give-away items made from recycled materials to hand out at the Pumpkin Fair, Street Fair and various other community events.

This is an example of the many areas where the state is continuing to skim more away from our local resources and keeping it for their bloated bureacracy. As long as the state continues these sorts of stunts, they will delay reducing their own operating costs.

The Neverending Story (California's Budget)

Here's an excellent piece from today's California City News blog:

2010 Budget & Ballot: There Will Be Blood
Dan Walters forecasted a "bloody battle" for the state budget in 2010 in the SacBee Friday. "They've scraped the bottom of the gimmick barrel, voters are livid and new taxes are functionally off the table," writes Walters, adding "This will be one of the bloodiest skirmishes the Capitol has ever seen – with the only option being that the most populous state in the nation default on its debts."

Current projections have the 2010 budget already in the hole somewhere between $15 and $25 billion -- depending on who you believe and how cynical you are on an economic turnaround in the next 6 months. So against this backdrop, and heading into the homestretch of 2009, why don't we take a look at what's in store for the State of California in 2010...Livid Voters.

Walters is right on the mark with that one, and we're not even going to bother looking up the current approval ratings for the legislature. We all know they're abominable, and what is for certain: voters will have plenty of opportunity to voice their displeasure in 2010.

At a macro level, you have a poisoned national political dialogue, rampant unemployment and all heading into a midterm election year that will have Republicans angling for a 1994-style takeover of congress. In California, you'll have former HP exec Carly Fiorina trying to oust Barbara Boxer -- if, that is, Fiorina makes it past Chuck DeVore in the republican primary. Which brings us to the first of several key indicators for 2010: to what end does the conservative right drive the primary season?

As was seen last month in a special election in New York, and this month in Orange County, the Republican grassroots is pushing staunchly conservative, if potentially flawed, candidates for office. Regardless of your position on these issues, how this plays out, and whether the winner of these battles remains viable in the general election, will have a profound impact on the outcome of races up and down the ticket. Lacking a "true conservative" in the Governor's race (for now), this will likely not impact the Republican Guv's primary, but may force Whitman to tack right on certain issues. Still too early to tell where that race is headed (on either side).
Contributing to the political calculus here will be the spate of initiatives up in November, which will more than anything drive the statewide turnout on key social issues. There are already "oldie but goodie" type measures on both sides -- from gay marriage to abortion issues -- lining up to drive the base of both parties.

The Budget and Governor's RaceIf you think voters are unhappy now, wait until they endure another 9 months of budget collapse and Capitol Civil War. With the aforementioned deficit on the horizon, the "special interests" in Sacramento will be loaded for bear, and in little mood to negotiate with a Governor on his last lap. As Walters wrote in the Bee, the SEIU has already stated "Budget solutions must include new revenue." So that gauntlet is down.
Sitting here today, it's difficult to see how the state's hands won't be in the pockets of local government again next year. Of course, the Prop 1A 'loan' from this year must technically be repaid before further borrowing, but the legislature has demonstrated creativity in this arena in the past. Locals will have an initiative of their own on the 2010 ballot, and a potentially large stake in several of the reform efforts, which brings us to...Slow Train Coming: ReformAmong the key reform proposals now circulating:

The League of California Cities, the California Transit Association and California Alliance for Jobs have submitted two ballot measures protecting local government revenues.

California Forward has submitted two proposals, one which addresses local government funding and taxing authority.

The Bay Area Council has submitted two proposals calling for a Constitutional Convention.
Each of these measures is fairly complex and nuanced, and we'll devote a lot more space to examining each of them in the coming months.

Some broadstrokes:
The League's effort is essentially an expansion of Prop 1A, and not unlike 1A's forerunner Prop 65. It would lock down local revenues and add HUTA and other local dollars into that "lockbox."
California Forward's measures include new (and protected) local taxation authority, but is on the surface lacking in broad protections for local revenues. The argument there is that the state will be more stable and less likely to raid if their reforms are instituted.

The Constitutional Convention (ConCon for short) is focused on fixing state government, with a lot of uncertainty as to how locals would come out on the other end.

And that's the basic picture going into 2010. A lot is still yet to be decided, for some perspective, one year ahead of the 2008 presidential election, pretty much everyone was making ready for a Hillary vs Rudy throwdown, and look where that ended up. But the players and the board are starting to come into focus, and if anything, the stakes are high and everyone will be playing to win. Get ready...

Layoffs back in the News

I'm sure that most of you are aware that the State of California is beginning to come clean with their budget situation (click here for story). I don't think there was a state budget watcher anywhere who believed that the budget they passed was even close to balanced. As Dan Walters noted:

Anyone with half a brain and a hand calculator could figure out that many assumptions on which the budget was based, both spending and revenues, were unrealistic, some of them conjured out of thin air to "balance" an inherently unbalanced budget for political reasons.

The question now is whether or not the state's labor unions will attempt to come up with a revenue enhancement that continues to put off the inevitable--massive layoffs at the state level. It isn't unrealistic to think that the state will have a repeat performance of last May, when they attempted to extract more dollars out of the voters--who will likely overwhelmingly turn it down.

In the past few days, two of our neighboring cities (Lathrop and Tracy) floated the idea of tax measure for public safety. Both proposals were shot down. Here in Manteca, our Budget Advisory Committee emphatically shut down the idea of revenue enhancements eight months ago.

For some reason, our state government always seems to be the last to get the message.

We've also got a number of cities still coming to grips with our woeful revenue situation. The City of Vallejo, as part of their mid-year budget is looking at laying off seven more police officers (click here for story).

In Fresno, it looks like over 100 layoffs and furloughs are in the works.

Addressing the City Council and a packed council chamber, Swearengin said she understands the pain of those who would lose jobs and the frustration of Fresnans who could see reduced services.

But, she added, "before anything else, our No. 1 responsibility is to be good fiscal stewards."

Swearengin and City Manager Andy Souza outlined a plan to fix a $27.8 million general fund deficit expected to unfold over the next 18 months. The problem is a sharp and unexpected drop in various tax revenues and a jump nearly as sharp in expenditures, particularly retirement costs.

Swearengin's plan comes only about six months after city officials made cuts and layoffs to close a $27 million budget shortfall.
Looking ahead, city officials said an additional $4 million to $9 million in cuts may be necessary to balance the 2012 budget.

"We are an organization that must contract," Swearengin said Thursday afternoon during a meeting with The Bee's editorial board.

Among other things, Swearengin is calling for 125 layoffs, a mandatory 40-hour furlough for many employees, plus the closing of four of the Parks Department's neighborhood centers and two fire stations. The fire stations are Station 10 in east-central Fresno and Station 18 west of Highway 99.

Click here for full story

I don't expect the revenue picture to get any better anytime soon. The real estate market problems are not just a subprime issue anymore as noted in this story:

A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.

Driven by rising unemployment, such loans accounted for nearly 33 percent of new foreclosures last quarter. That compares with just 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.

At the same time, the proportion of homeowners with a mortgage who were either behind on their payments or in foreclosure hit a record high for the ninth straight quarter.

The Mortgage Bankers Association's report Thursday suggests the housing market and broader recovery could be thwarted by the continuing surge in home loan defaults, especially as the unemployment rate keeps rising. Lost jobs, rather than the shady loans made during the housing boom, are now the main reason homeowners fall behind on their mortgages.

After three years of plunging prices, the housing market started to rebound this summer. While optimists hope the worst is over, pessimists say there are simply too many foreclosed properties that have yet to be dumped on the market and expect further price declines.

Click here for full story

Not so cheery news continues...

As a follow up to yesterday's post, here are a couple more articles about the sad state of affairs for state government revenues.

Bloomberg (click here) reports that a survey of fiscal officials predicts diminshed state goverment revenues at least through 2012.

The only thing that kept states from “draconian” spending cuts has been $135 billion of funding under President Barack Obama’s economic stimulus package, according to a report from the National Governors Associations and the National Association of State Budget Officers. Revenue fell 7.5 percent in fiscal 2009, forcing states to close budget gaps of $72.7 billion.

“These are the worst numbers we’ve ever seen,” said Scott Pattison, executive director of the budget directors group, in a news release. “States have been forced to lay off and furlough employees, raise taxes, drain rainy day funds and sharply cut state spending.”

As the U.S. economy emerged from the worst recession since the Great Depression of the 1930s, local revenue will trail an economic rebound and continue its decline in 2010 before slowly returning to pre-recession levels by 2012, the report said.

The story goes on to note that there will be a lot of unmet needs during the recession and it will take years for states to rebuild their rainy day funds and catch up with deferred projects and deferred maintenance. This means that most states will not fully recover from this recession until late next decade.

Capitol Weekly (click here) also notes that California state officials see a bleak budget outlook through 2012 as well. The state's problems are compounded by the fact that many of the revenue fixes this year can't be repeated and some of the revenue enhancements (i.e. the sales tax increase) will expire before the recession is over.

The good news from reading between the lines in the article is the fact that the state may have to break down and actually reduce their spending instead of just punishing state and counties.

I've been trying to stay away from budget doom and gloom in my recent posts, but I felt like it was important to reinforce that we are still in the tunnel--and there is no light yet!

California, Once again on the leading edge...

Today's Sac Bee has the following article which notes how California is ahead of the pack when it comes to fiscal insolvency!

Here it is:

November 11, 2009
California crisis cited as warning for other states

California's state budget crisis is so severe that the Pew Center on the States, a Washington-based policy think tank, is using it as an example of conditions that imperil other states.
Nine other states, the Pew report says, are facing "some of the same pressures that have pushed California toward economic disaster," adding that they also could see furloughs of public employees, severe cuts in education and reductions in the social welfare safety net.
"A challenging mix of economic, political and money-management factors have pushed California to the brink of insolvency. But while California often takes the spotlight, other states are facing hardships just as daunting," Susan Urahn, managing director of the Pew Center on the States, said in a statement accompanying the report. "Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers."

The report was issued just two days after Gov. Arnold Schwarzenegger acknowledged that the state's current budget, enacted last July, is as much as $7 billion in the red already. He is expected to propose ways to close that gap and deal with the projected deficit in the 2010-11 budget no later than Jan. 10.

The other nine states threatened with California-style fiscal crisis, the Pew report said, are Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. With California, they represent one-third of the nation's population and economic output.

The report identifies California's fiscal problems as loss of revenue, the relative size of its budget gap, high home mortgage foreclosure rates, legal obstacles to balancing the budget, and "poor money management practices."

Although the nine other states have some similar problems, several of them "already have responded aggressively to their budget crisis, although it is too soon to tell whether their actions will put them on solid fiscal footing."

The full report, titled "Beyond California: States in Fiscal Peril," actually looks at the finances of all 50 states but concentrates on California and the nine states deemed to be in most fiscal peril.

The report is available here.

Big League Dreams Quarterly Revenue Report

The City has received the 3rd Quarter – 2009 Retail Revenue Report for the Big League Dreams Sports Park (copy attached). The success story continues!

Growth continues in both revenue and attendance as all facilities are up and running, some at capacity. Third-Quarter retail revenue reached $573,290, which exceeds the 2nd Quarter 2009 revenue by $81,579 – a 14% increase.

The City received a rent check for $104,779.10 for the 3rd Quarter of 2009. A busy July contributed to the majority of this increase. Revenues totaling $268,436 in restaurant/concessions revenues alone were received for the month of July – an all-time record for Manteca’s Big League Dreams. Paid attendance for the 3rd Quarter of 2009 totaled 127,269, compared to 112,797 for the 2nd Quarter – an increase of 13%.

BLD%203rd%20Qtr%202009%20report.pdf

Election Wrap Up

While there were no elections here in San Joaquin County, many cities across the state held City Council elections while others held special elections to preserve or increase taxes.

As I noted last spring, our city's Budget Advisory Commitee made it painfully clear that there would be no chance of increasing revenues here in Manteca until we demonstrated that we had cut all unnecessary expenditures--including reductions in the labor contracts for all of our employees.

Yesterday, in a desperation measure, the City of Salinas attempted to pass a one cent sales tax for Public Safety. Even during the best economic times, most cities (including Manteca) never asked for more than one-half cent. Not suprisingly, the measure went down in flames (click here for story) and now they must do what the rest of us are doing--cutting beyond the bone. Ventura and San Carlos had half-cent measures that failed while two cities had measures which passed.

Statewide, a number of utility tax measures passed. Most of these were clean up measures to ensure that an existing utility tax was valid under the current state law. There were some upscale communities that were able to pass parcel taxes and some school bonds passed as well. However, there were very few cities that even attempted to get new revenues from their voters.

For an excellent summary of all the ballot measures, click here.

California Taxing itself out of existence?

I spent a great deal of time yesterday seeing what San Joaquin County could do to minimize the impact of the NUMMI closure next March. There are a number of alternate fuel auto manufacturers that have purchased abandoned auto plants in other states and often kept many of the existing workers.

You would think that our economic development experts at the state level would be mobilized and attempt to find some way to keeps autos coming out of the last major plant in Northern California. Well, the silence from the state right now is deafening! I'm not going to rant yet, because it may be that they are working behind the scenes--but publicly there is absolutely nothing the state is doing, which is tragic.

Click here to read a recent article from the Autumn Edition of "City". It basically contrasts the California and Texas state governments. It points out that Texans pay far less to their state government, yet nowadays receive equivalent or better services than their counterparts in California.

How? In Texas, most tax dollars go towards providing services, not towards lining the pockets of state workers! The article provides a link to another dreary article which provides a summary of how the state of New York destroyed its economy a generation ago following the same model California is now operating from...i.e. lots of taxes to run off businesses and little return from those taxes to help the state grow.

I would highly recommend the read, it may be our future.

Deja Vu All Over Again

Today's article talks about a ninth straight unbalanced budget, skyrocketing labor costs and the need to either reduce compensation or the workforce. Sounds like many recent Bulletin articles? Actually it is an article in today's Mercury News discussing the City of San Jose's precarious budget situation.

Here are some excerpts from the story:
...City Manager Figone said she is not seeking to "blame our labor unions" but simply aims "to confront the realities." Those realities, she said, are that in a city facing its ninth straight budget deficit, where personnel costs account for two-thirds of costs to the $880 million general operating fund, the only way to close the shortfall is by shrinking either the number of employees or their individual costs.

Figone said the city would have to cut 763 jobs to cover the projected $90 million deficit without a boost in revenues or concessions from the workforce.

She noted that the city's deficits have soared this decade along with costs for its employees' pay and benefits. While the city's full-time workforce has shrunk from 7,000 to 6,600 since 2000, the average cost for each worker has shot up 64 percent to $120,418. Had pay and benefits merely increased at the rate of inflation as measured by the Consumer Price Index, the average cost would have risen 18 percent to $86,997 today.

The increases have been particularly steep for the city's police officers and firefighters, whose average cost in pay and benefits rose 78 percent this decade. The cost for just their retirement benefits rose 174 percent — more than twice the rate for other city workers — as their maximum pension grew to 90 percent of their final salary with automatic 3-percent annual increases.

But the employees' rights to negotiate any changes in pay, benefits and working conditions narrow the city's ability to shrink costs. And city voters in 1980 granted police and firefighters the right to have outside arbitrators settle contract disputes, which critics say is the reason for their steeper pay and benefit increases.

Among concessions Figone is seeking:
Reduced retirement benefits for new employees. More than half of the projected deficit is due to investment losses in the city's pension funds, which taxpayers are on the hook to offset with added payments. Because retirement benefits can't easily be changed for current employees, Figone wants to negotiate a lower and less costly benefit for new hires.

Reduced health benefits. Figone wants to explore several recommendations from a recent city audit, including having employees pay more for premium costs and co-payments, offering a cheaper plan with a deductible and reducing incentive payments for those who decline coverage.

Reducing automatic "step" raises. Employees typically get five, 5-percent annual raises during their first four years in a new position. Figone has suggested more performance-based raises that would have to be earned over a longer period.

Reducing sick leave cashouts. San Jose's current policy cost taxpayers $7.8 million last year and is more generous than other governments; some police officers and firefighters have collected six-figure sums for unused sick leave upon retiring.

Eliminating "redundant compensation" for injured officers and firefighters who can receive both workers' compensation and disability retirement benefits.
Chavez said city workers earlier this year "tried to give money back" by suggesting unpaid furloughs and other ideas, "and the city made it difficult to do that."

City officials, however, said the workers' proposals did not actually save money or were otherwise unworkable.

Click here for entire article.

As I've noted before, we aren't alone. This isn't just a Manteca issue or a valley issue, or even a California issue. The problem is worldwide and it isn't going to go away until we make fundamental changes in the way we do business.

New Ballot Initiative Proposed to Protect Local Revenues

Tuesday, a coalition, including the League of California Cities, local government, transportation and public transit leaders filed an initiative ballot measure -- called the Local Taxpayer, Public Safety and Transportation Protection Act -- with the California Attorney General’s office.

Specifically, the initiative would:

Prohibit the State from taking, borrowing or redirecting local taxpayer funds dedicated to public safety, emergency response and other vital local government services (including redevelopment). The measure would close loopholes to prevent the taking of local taxpayer funds currently dedicated to cities, counties and special districts. It would also revoke the State’s authority to borrow local government property tax funds or divert local redevelopment funds.

Protect vital, dedicated transportation and public transit funds from state raids. The measure would prevent State borrowing, taking or redirecting of the state sales tax on gasoline (Prop. 42 funds) and Highway User Tax on gasoline (HUTA) funds that are dedicated to transportation maintenance and improvements. It would also prevent the State from redirecting or taking public transit funds.

This measure would eliminate the loopholes in Prop 1A, which was previously passed by the voters to protect our local sources of revenue.

More Company for our Misery

I was mentioning the other day how our budget woes are a nationwide trend. Here is just a partial listing of articles from just the last week describing California cities that are going through the same experience as us:

By the way, on some computers, it will ask you for a password to link to these stories. Cancel out the password request, go up to the web address box and you'll see the following:
http://www.ci.manteca.ca.us/exchweb/bin/redir.asp?URL=http://www.redding.com/news/2009/oct/06/redding-mayor-suggests-ballot-measure-could-cut/%2520

Just delete out everything up to and including the "=" (equals sign) and leave the rest and you should be able to get to the story. Of course, some of the stories will already be gone, but for most this should work.


Redding mayor suggests ballot measure could cut more city benefits... Posted October 6 by the Record Searchlight
State employees take pay cuts, save 1,100 jobs... Posted October 6 by CBS 13
Alameda moves to cut health benefit costs for new hires... Posted October 5 by the IslandofAlameda.com
Recession making it tough for San Joaquin agencies to maintain workplace diversity efforts... Posted October 5 by the Stockton Record
California blunts budget cuts... Posted October 5 by the Wall Street Journal
L.A. city SEIU local: "our members get loud and angry"...Posted October 4 by OurLA.org
Is Columbus Day a holiday? State workers get conflicting advice...Posted October 4 by the Sacramento Bee
Loma Linda forced to cut staff...Posted October 3 by the Press-Enterprise
Sonoma cuts “to the bone” to balance budget... Posted October 2 by the Sonoma Valley Sun Prison educators get layoff notices... October 2 by the Press-Enterprise
Tuolumne County employees benefit from PERS windfall...Posted October 2 by the Union Democrat
Brea to temporarily cut on-duty fire staffing...Posted October 2 by the OC Register
Union concessions may ease Sacramento County budget crisis... Posted October 2 by the Sacramento Bee
Riverside County declares impasse with prosecutors...Posted October 2 by the Valley News
Union workers cut in Guadalupe... Posted October 1 by the Santa Maria Times
San Jacinto approves cuts in office hours, workers' pay... Posted October 1 by the Press-Enterprise
UC Riverside employees to get "temporary layoff" notices... Posted October 1 by the Press-Enterprise
Alameda County, SEIU come to new pact...Posted October 1 by the Oakland Tribune
546 S.F. workers get layoff notices, but many will be rehired, paid less...Posted October 1 by the SF Public Press
Vallejo IBEW president: time for resolution, redirection... Posted October 1 by the Times-Herald See also Retiree group wants to see Vallejo's Chapter 9 exit strategy... Posted October 2 by the Times-Herald
UCSF offers furloughed employees little help via "hardship loans"... Posted September 30 by the SF Public Press
Opinion: Myth of the underpaid public employee...Posted September 30 by the Boston Globe
Anaheim teachers face up to 11.75% pay cut... Posted September 30 by the OC Register
Furloughs equal more work less pay in S.F.... Posted September 30 by MissionLocal.org

NEGOTIATIONS/LABOR RELATIONS
Deputies' union says non-sworn jail guards compromise safety... Posted October 5 by the OC Register
Vallejo Con Dios: New report on unions' impact... Posted October 5 by the Times-Herald
And... Posted September 28 by the CATO Institute
Don Perata still making bank from prison guards' union... Posted September 30 by the Contra Costa Times
Glendale USD, teachers union start far apart... Posted October 4 by the Glendale News-Press
PERB ruling favors Modesto CEA leader... Posted October 2 by the Modesto Bee
Palo Alto to resume negotiations with IBEW... Posted October 2 by PaloAltoOnline.com
See also Palo Alto police managers forming own group... Posted October 1 by PaloAltonline.com See also Palo Alto managers talk of joining Teamsters... Posted September 30 by PaloAltoOnline.com
Anger is mutual for SEIU, SF mayor... Posted September 30 by the San Francisco Chronicle
Santa Maria’s City Attorney rejects ballot measure on police pay... Posted September 30 by the Santa Maria Times

PENSIONS/RETIREE HEALTH
Pensions’ post-crash reforms: Slipping away?... Posted October 5 by Calpensions.com
Pensions for new hires targeted as Marin County, area cities seek changes... Posted October 4 by the Marin Independent Journal
Daniel Borenstein: Taxpayers are stuck with public pension increases... Posted October 4 by the Contra Costa Times
San Diego County retirement board rejects CEO's advice on counsel... Posted October 2 by the San Diego Union-Tribune
LA coalition of unions: Vote yes on early retirement deal... Posted October 2 by OurLA.org
LAPD officers continue to bargain... Posted October 2 by the Los Angeles Wave
Publicizing $100,000 pensions is a way to reform the pension system — or kill it... Posted October 2009 by Governing.com
Initiative to shrink California’s employee pensions gains steam from public outrage... Posted September 30 by the OC Register
See also Legal trouble may loom if MWD board rejects new contracts... Posted September 29 by the OC Register
See also MWD retiree health plan: Too big to last?... Posted September 30 by Calpensions.com
See also MWD pension idea in line with other agencies... Posted October 5 by the San Diego Union-Tribune
California public employees have better pensions than feds... Posted September 28 by the OC Register

CALPELRA thanks Mark Flannery for his assistance in offering this service to its members.

City Council Post Mortem

Tuesday night's City Council meeting was not something that I or the City Council ever wanted to experience. It is painful to watch employees denigrate their fellow employees and painful to see spouses feeling the need to defend the city worker they live with.

All of our employees provide important services to the public. Whether it is the worker who makes sure that your toilet flushes, or the worker who keeps your park maintained or officers who respond to emergencies--they all play an important role. While public safety is critical, is it really more critical than making sure that your toilet works or your water flows or that your roads are passable? Certainly, when someone calls 9-1-1, there is no one more important than that officer. On the other hand, there wouldn't be any residents in this city if we couldn't provide them with basic services. I can also assure you that there would be more criminals migrating to town if our parks weren't maintained or if our codes weren't enforced.

The bottom line is that we wouldn't be having this debate if the economy weren't at its lowest point in the past 75 years and we are in the part of the country most severely impacted by this recession. The bloggers on the Manteca Bulletin site and many of the speakers Tuesday night seemed to be focused on finding the villan in this mess. The villan is the economy--everything else is a biproduct of a revenue downturn that none of us could have ever predicted.

My goal is to try and keep our municipal corporation intact during this difficult time. The City Council and I realize that every aspect of city government must suffer and that NO part of our operation is completely immune from this downturn. Frankly, the cutting has been going on since the day I got here and the cutting has not been equal. There are plenty of areas in this operation that have suffered greater cuts than Police, because public safety is a high priority. The fact that our officers are among the highest paid employees in the city reinforces the city's focus on public safety. However, being a high priority doesn't make one completely immune from the cuts.

The proposed agreement for Police is NOT an all or nothing proposition. It is the absolute minimum we can take from the operation without creating irretrievable losses in the rest of the city's operation. In addition, while most city employees are taking furloughs with nothing in return--the Police officers are getting the time back in return--and while the rest of the employees received a 4 percent adjustment last January, the officers received six percent. Thus, the officers have not been treated the same, public safety has received special consideration.

In addition, I'm tired of hearing about the lack of trust. I have been upfront with the MPOA from day one. I never, ever claimed last fall that the furloughs (which aren't even costing the officers anything in the long run) would be the final solution for our budget woes. Not only did I make it clear that we would need to come back if our budget situation continued to deteriorate, I also held a meeting for all of the membership of the union on May 4, 2009. That meeting was to make it clear that more concessions would be needed to bridge the budget gap--we just didn't have final numbers yet. As most of you recall, we wanted to wait until all of our revenue numbers were in before coming up with a cost reduction proposal.

This is not a game where we ask for 50 dollars, hoping we can get $25. We purposely waited until every number was available before we determined what the labor cuts needed to be. We also dug up every dollar we could find to go towards reducing the number. The City is going to be accessing every dollar we have available in reserve (and then some) to keep these cuts to a minimum. If we had to balance the budget this year without these reserves, we'd have to ask for these salary cuts AND have massive layoffs.

We are doing everything we can to preserve jobs and keep service levels up in the community. I can't believe that people don't understand that. Times are extremely tough and other than our immediate family members, I don't think there are many people in the community who feel that anyone in government is immune from salary cuts. Just do a google search of city budgets, and count the thousands of cities experiencing exactly what we are going through now.

This need to cut compensation isn't to try and punish one group, or to break a union or cobble away money from some special project. This is an attempt to survive a problem that is nationwide--except that it is even worse here in the Valley. No City Council, no City Manager, no palm reader could have predicted this. This isn't a conspiracy, it is reality and I would prefer we find a way to survive this by banding together instead of breaking apart.

We are not alone...

"Misery loves company" is how the old saying goes and it looks like our neighboring city to the west is now following in our budget footsteps.

Yesterday's Tracy Press had an article detailing (click here) the financial woes facing Tracy's city government. As many of you know, the voters in Tracy put the brakes on residential development several years ago. Like most valley cities, Tracy was very dependent upon the revenues generated by new development. The voter intiative basically put a stop to new development for up to five years. In order to survive during the no growth years, Tracy saved up funds during the boom times. By 2007-2008, they had about $38 million in the bank. They had hoped that this would keep them afloat during the tough times.

When the recession hit, Tracy was in a better short-term situation than the rest of us--who hadn't anticipated a sudden drop in development revenues. Unfortunately, their rainy day account has only delayed the inevitable. While their reserve started out much larger than the rest of us, they also started cutting later than the rest of us as well. They were hoping that the recession would be quick and that their reserves would allow them to survive without deep cuts.

Tracy realizes, just like the rest of us, that revenues are going to stay significantly below the peak of the real estate bubble. Thus, they must make major structural changes in their budget in spite of their still healthy reserve--as a $14 million structural deficit can eat up reserves very quickly. While they've apparently made $5 to $7 million in cuts to the deficit, it now appears that up to 67 positions will need to be eliminated to reduce the budget deficit.

I continue to see similar stories crop up in cities across the state. The deteriorating financial status of the economy is forcing additional layoffs in local government. Click here for an article about the City of Oceanside, which is looking at losing up to 50 positions due to the recession and thefts from the state.

One (semi) positive note. The State of California has dropped its appeal to the judge's ruling that forbid the state from stealing redevelopment funds in last year's budget. Unfortunately, as most of you know, the state ended up taking six times as much from redevelopment agencies over the next two budget years as punishment for winning the lawsuit. Click here to read more about the status of the lawsuit we'll be filing this year to once again block their illegal theft of $8 million of Manteca's redevelopment funds.

Items in the News

I realize that these are trying times for all of city staff. No one likes to lose income, but I guess I feel like I need to keep harping on what we have, and not what we don't have. A number of folks have asked me to try and put more positive news in the blog. I think the positive story is that even with the proposed reductions in salary, we are still in far better shape than the typical San Joaquin County resident.

For example, here is a link to a story in today's Stockton Record (click here) about the county's poverty rate, which has gone up markedly in the past year. Nearly one in four children in our county lives in a household with an income below the poverty line (22,000 per year). In another article (click here), UOP's Business Forecasting Center notes that domestic output in San Joaquin actually dropped last year. The article notes:

The Stockton metro area, essentially San Joaquin County, saw its constant dollar GDP fall 0.3 percent in 2008 to just under $16 billion, ranking it 264th in total economic growth.

And the area's long economic slide deepened this year, said Jeff Michael, director of the Business Forecasting Center at University of the Pacific.

"When you look at this number next year, in '08 to '09, Stockton ... will be more negative," he said Monday.

"What makes it a little bit painful for this area is we're coming off a couple of years of subpar growth in '06 and '07."

The article further reinforces why we shouldn't even considering borrowing funds to plug our budget deficit for this year. We are in the middle of a very deep recession further exacerbated by the fact that we are in the center of the mortgage meltdown. We rode the top of the crest during the housing bubble and we are now drowning in debt with the rest of the Central Valley.

The economic trends are certainly not pointing upward, and our hope that property tax and sales tax remain flat is best case and not near the worse case scenario. An article from yesterday discusses the current state of property tax collections in Calaveras County (click here). It describes the world of "negative supplementals" that we've been warning our employees about.

...Calaveras County since August has been sending out more in refunds than it is receiving in additional taxes for properties that get supplemental assessments midyear due to sales or new construction.

Supplemental assessments are in addition to regular property tax bills and are a way to either bill for the additional taxes or send a refund for the part of a year that a property is under new ownership or has newly completed construction. The supplemental is no longer necessary in subsequent years once a new base value is set for a property.

Acting Calaveras County Assessor Leslie Davis says that the negative revenue from supplemental assessments is an ominous sign that a significant drop in the county's property assessment roll and property tax revenue may be ahead.

While we've got a decent amount of new construction occurring in Manteca, we also have a lot of homes selling at less than their assessed value. This is why we've projected no increase in net property tax collections during the 2009-2010 budget year.

The Bulletin has a good article today (click here) as well about the need to be prudent. How can we possibly expect to borrow to plug our structural budget deficit. There is no way we can take on additional debt when all the economic forecasts clearly demonstrate that we won't have the money to pay back the funds in the future. I have no interest in behaving like the State of California and putting off the inevitable--and then paying a greater price for delaying the pain.

SacBee Series Highlights State Budget Dysfunction

The Sacramento dedicated a three part series this week to the state's dysfunctional budget.

Sunday's Article (click here) clearly the lays out the current situation:

"...It's been a mess for much of the past three decades because the combination of an out-of date tax system, reckless spending and fickle voters has made state government extremely vulnerable to the ebbs and flows of the economy..."

Monday's Article (click here) talks about the out of control spending by the legislature. As stated in the article:

..."The way Dave Doerr sees it, California's elected leaders ran for the wrong offices.
"They really ran to be Santa Claus, and made a mistake and filed for the Assembly and the Senate," said Doerr, the senior tax consultant for the California Taxpayers Association.
Doerr's reference is to a penchant of lawmakers and governors over the past three decades to spend whatever money they have on hand - and promise even more - then let succeeding budget drafters fend for themselves..."

Tuesday's Article (click here) talks about the many ideas currently being floated to try and fix the current disconnect between revenues and expenses.

The articles do a great job of explaining how we got here and how difficult it is going to be to solve the situation. In fact, it further reinforces local government's concerns that they are going to come after for more money before the fiscal year is even over.

League of Cities looks to protect local revenues

Here is a news release from the California League of Cities:

On September 18, the General Assembly of the League of California Cities overwhelmingly authorized its board of directors to evaluate and, if feasible, seek voter approval of a November 2010 ballot measure to provide broad constitutional protection of local revenues.

The ballot measure would constitutionally protect against future efforts to divert, borrow, or steal revenues that fund local government services. This measure would go beyond the protections of Prop. 1A and would include the following revenues: property tax, sales tax, local share of gas tax funds, gasoline sales tax funds, redevelopment property tax increment, UUT’s, TOT’s, and business license taxes.

City officials will be asked to devote personal time to gather signatures, raise private funds, and help organize a statewide grassroots coalition to secure this ballot measure. The promotion of ballot measures or participation in ballot measure advocacy activity cannot occur on city time or using city facilities or equipment.

Once again, the state has left us no other options, as they continue to decimate our budgets instead of fixing their own problems. While this won't solve all of our troubles, it should help reduce the ways in which the state can steal our funds. Hopefully, we can force them into a position where they will actually have to reduce state government instead of taking from us.

Comparison Cities

I've been spending a lot of my nights and weekends reviewing the budgets of other area cities. What I found most interesting was the huge disparities in general fund income among cities, but the uniformity of salaries among cities. I also added in the 2005 Uniform Crime Rates to give you an idea of this variance among the cities as well.

In the chart below, the eight cities listed directly below Manteca are those which have been used in the past for salary surveys. I also listed some additional cities which are similar to Manteca in size and budget--which should probably be considered in future salary surveys as well.



Thus, you can see that ability to pay and other factors such as crime rates have had little or no impact on public safety salaries--or many other city salaries as well. In fact, the two lowest cities on the chart (Turlock and Manteca) offer some of the best pay packages for miscellaneous employees. You also have to question why cities with so little in common with Manteca were used for salary surveys? Tight labor markets--particularly for public safety workers have a lot to do with it.

It was the perfect storm for public safety workers over the past decade. Increased retirement packages created a wave of retirements in public safety at a time when there was a dearth of workers entering the job market. In addition, psychological exams and other pre-requisites were further shrinking the pool of potential applicants. Finally, there was a growing public sentiment to increase the ratio of officers in each community--cities such as Manteca and Stockton were not able to raise funds for parks maintenance but were able to pass tax measures for public safety--mostly due to the political skills of our fire fighters. On top of all this was a boom in jobs which led to an overall increase in wages in all job types.

The result was that cities with paltry revenues were required to pay on an equal par to much wealthier cities--and these cities were then included in the salary study of every poorer city. This put a tremendous strain on the budgets of have-not cities such as Manteca, but the real estate bubble created a short term windfall in revenue.

Unfortunately, the economic bubble has burst and cities such as Manteca and Turlock have to find a way to keep up service levels without going deeper into debt. In the short run, both staffing reductions and salary concessions are necessary to balance the budget. In the long run, we'll likely get bailed out by both economics and demographics. Economically, both high and low revenue cities are seeing major drops in their income. Even the wealthiest cities are reducing their workforces. This will reduce the overall demand for public safety workers. Demographically, there are now far more people entering the workforce than a decade ago as all the kids of the baby boomers are reaching adulthood.

We are now looking at a complete reversal in the supply-demand balance in the job market. Not only do we have an ever increasing unemployment rate, but we have a huge wave of folks entering the job market. Under these conditions, wages always drop in real terms and labor agreements become better connected to the economic conditions of the employer.

Obviously, these trends take time to ripple through the workforce--particularly through government. However, given the tenuous budget situation of every city in the state, it is likely that economic adjustments will happen a lot faster than in past recessions.

Layoff Notices

Today, 248 city of Manteca employees will be receiving a notice that they may be laid off from their job in 30 days. While only 40-50 employees could potentially lose their jobs, our employment rules require me to send a notice to every employee who could possibly lose their job. This was an incredibly difficult decision, by far the toughest thing I've had to do in my 30 years in local government. However, the current economic malaise left me no other options.

The good news is that each employee bargaining unit has the opportunity to retain their employees. The actual decision is not up to me, it is up to each bargaining unit to decide if losing a small percentage of their take home pay is more important than their co-workers job. As I was quoted as saying in the Sun Post, we don't have a staffing problem, we have a salary problem. I'm proud of the fact that our employees efficiently operate this city with far fewer employees than many similar cities. I don't want to lose any of our employees because it is going to create a real burden on those who are left. Our constituents expect the same level of service whether we have 375 employees or 325 employees.--and I'm going to demand that our managers continue to provide equivalent service with less staff.

We have a salary problem partly because we have a challenging revenue problem--and partly because our salaries have begun to closely mirror bay area wages instead of valley wages. Trying to pay bay area wages with valley revenues is not an economic model that can be sustained--we generate about one-third as much revenue per capita when compared to our east bay brethren. Even when comparing us to valley cities, we don't have a very diverse revenue base.

Many cities have utilities taxes and/or electric utilities, parks maintained by landscape maintenance districts and a diverse economic base with lots of commercial offices, retail and industrial space. While we are beginning to diversify our economic base, we've got a long way to go. Our city is heavily dependent on property tax and sales tax. I've chronicled in this blog many times the troubling trends for these two revenue sources--and these trends aren't going to change any time soon!

Let's not kid ourselves, the economic fortunes of the northern San Joaquin Valley are not going to change in the near future. We are still seeing massive numbers of foreclosures--San Joaquin County is back to being the number one foreclosure market in the country (click here for latest data). Our unemployment rate is heading towards an unthinkable 20 percent with the closing of the NUUMI plant in Fremont. With jobs continuing to disappear, the economy can only continue to decline. As the economy continues to decline, property values will continue to drop and retail sales will continue to suffer. The only reason it hasn't been worse is due to the federal stimulus package. Without a second stimulus package, many government and private sector jobs will go away.

In the face of the worst economic calamity since the great depression, I'm mystified that many of our employees can't accept the fact that compensation has to be reduced. I would challenge any of our employees to find any private company in San Joaquin County that hasn't reduced total compensation to their employees. And if you can find one, I'm sure there are 999 others that have reduced compensation--and I'm sure they've reduced it far more than what I'm requesting of our employees.

As I noted in Tuesday's blog, our workers have been well compensated over the past 15 years--receiving wage increases at nearly twice the rate of the average resident--and have received an enhanced retirement to boot. During better economic times, our employees were able to share in our increased economic strength. In tough times, our employees need to share in the pain and suffering as well. Frankly, we don't have any choice. Unlike the federal government, we can't print our own money. At the end of the day, we have to balance the budget.

Labor

Over the past 15 years, median family income in San Joaquin County has increased a total of 58%, which averages out to about a 3% increase each year. As you can see from the chart at the bottom of the blog, there were very few years where income jumped more than 4%.

Conversely, most Manteca city government salaries have increased over 100 percent during the same time period. To perform the salary analysis, staff reviewed the salary history of employees who have been in the exact same job title since 12/01/1994. It then narrowed the list down to employees who were at the top of the salary range, and therefore only received increases via cost of living adjustments or salary surveys.

In addition, while salaries jumped over 100 percent on average, post-retirement income has increased by nearly 180 percent for miscellaneous employees and well over 200 percent for public safety employees. That is due to the enhanced retirement plans approved earlier this decade. While employees gave up a small cost of living adjustment to receive the enhanced retirement, the City's cost to fund enhanced retirement plans has increased 300 to 400 percent since that time. In the past, the city paid from 0% to 10% on top of each employees salary into a retirement fund. The city now pays around 16% for non-safety and 26% for safety employees.

Thus, public employee salaries have increased far more quickly than the community as a whole, and post-retirement benefits (which are often non-existent outside of government) have grown exponentially as has the cost to maintain these enhanced retirement plans.

In our current environment of declining revenues, this is simply unsustainable. The salary concessions we are asking for are nominal compared to the generous labor agreements that our employees have received over the past 15 years.

Here are some examples from each labor bargaining unit which demonstrate how public sector benefits have grown since 1994:

White Collar Miscellaneous Employees:
Income growth over past 15 years: 100.91%
Increase in post-retirement income: 171.23%

Blue Collar Employees:
Income growth over past 15 years: 78.5%
Increase in post-retirement income: 140.98%

Middle Management:
Income growth over past 15 years: 109.21%
Increase in post-retirement income: 182.44%

Civilian Police Staff:
Income growth over past 15 years: 93.78%
Increase in post-retirement income: 161.61%

Police Officer:
Income growth over past 15 years: 106.01%
Increase in post-retirement income: 209.01%

Fire Fighter:
Income growth over past 15 years: 114.71%
Increase in post-retirement income: 222.06%


HUD Median Family Income
San Joaquin County

Median % Increase
1994 $40,200
1995 $40,200 0.0%
1996 $41,500 3.2%
1997 $42,600 2.7%
1998 $43,700 2.6%
1999 $44,300 1.4%
2000 $45,400 2.5%
2001 $46,900 3.3%
2002 $47,500 1.3%
2003 $50,600 6.5%
2004 $55,100 8.9%
2005 $55,300 0.4%
2006 $57,100 3.3%
2007 $60,300 5.6%
2008 $61,300 1.7%
2009 $63,600 3.8%

Increase 1994-present: 58%
Annual Increase: 3.1%
Increase 2001-present: 36%
Annual Increase: 3.85%
Increase 2005-present: 15%
Annual Increase: 2.93%

Tough Budget Times mean tough decisions

Staff will be meeting with the City Council in closed session tonight to discuss the impact of labor costs on our current financial situation. I'll try to give you a good overview in the next couple of posts where we stand financially:

2008-2009 Budget
Furloughs, early retirements and vacancies reduced expenditures by approximately $3.7 million.
Revenues were $700,000 below original estimates
Overall, about $3 million savings over original budget
Previous year budget savings of about $2 million

2009-2010 Budget
Year to Year Revenue decrease of about $2.5 million
Some operations have already been shifted out of General Fund
Beginning Budget Gap of $7 million
Proposing to carry over previous year savings ($3 million) to close portion of gap
Leaves about $4 million gap to reduce (15 percent of General Fund)

The good news is that what was a $14 million gap is now down to $4 million. The bad news is that we've already done just about everything we possibly can to close that gap. The only remaining alternatives are to reduce our service levels by reducing our staffing level, or seeing if our employees are willing to give back some of the cash gained from labor contracts that were negotiated in a very different economic climate.

I realize that it is hard to accept the fact that reductions in pay are needed to keep our jobs intact. However, for any of you that have family working in the private sector, this shouldn't be surprising at all. Huge cuts in pay and benefits are the norm right now in the private sector. We've been very fortunate in the public sector.

Public Employee Salaries in the news again

The Sunday edition of the Contra Costa Times has come up with the mother of all searchable databases (click here). The paper has been working for months to compile salary information on every single entity in the greater bay area -- which includes San Joaquin County. So far they've included 64 governmental entities with a total of 134,000 employees. The only local entity in the database is the County of San Joaquin (so far).

Here are some of the nuggets from the news story that accompanied the link to the database:

A public health care district in southern Alameda County paid its chief executive $876,831 in 2008 — more than twice as much as any other local government employee in the East Bay, San Francisco,San Mateo County and San Joaquin County, an extensive survey of salary data by the Bay Area News Group found.

The data show wide discrepancies in pay and sometimes high salaries in government agencies, such as the Port of Oakland, where a semiskilled laborer grossed $123,450 in 2008, and in Newark, in southern Alameda County, where more than half of the 215 city employees were each paid more than $100,000 last year and the average gross pay was $109,027.

San Joaquin County also had four employees in the top 10 highest paid employees — four doctors at the county's General Hospital, paid from $377,023 to $449,155.

The other two members of the top 10 were Alameda County Administrator Susan Muranishi at $424,810 and East Bay Municipal Utility District General Manager David Diemer at $380,023.

While the large salaries grab most of the headlines, it also points out the huge overtime often received by pubilc safety employees and the large percentage of safety employees earning over $100,000 per year.

While most employees don't receive these higher salaries, there is a widespread discontent among California residents with regard to public employee compensation. This is in addition to the backlash I've been documenting in previous posts regarding public employee pensions. As budgets get tighter and services diminish, there is no doubt that this discontent will continue to grow.

There are also a number of studies that argue that public employee compensation now far exceeds private sector compensation levels. Click here for the chart that demonstrates the results of one study. Whether or not you agree with the data is irrelevant, the reality is that public sentiment for government salaries is going south. I believe this is particularly true here in the "outer" bay area where housing costs and average household income is far lower than the bay area, but government salaries are nearly equivalent to those west of the Altamont.

I'll be discussing more in the future the challenges we are facing as we attempt to keep our salaries competitive with the "inner" bay area.

One Stop Permit Center

The City of Manteca's long-awaited "One Stop Permit Center" will be holding its grand opening celebration on Thursday morning. The $400,000 project is designed to process and expedite all planning, building, business license and limited Public Works/Fire development-related activities in one location. In addition, clients will now be able to pay all related fees directly at the new Permit Center location, thus avoiding an additional stop at the already over-burdened Finance Department counter. Business licenses will now be processed at the new Permit Center, and minor activities normally processed at the Public Works Department counter will now be handled at the new center.

This project is emblematic of what we are attempting to accomplish with service delivery of all city functions. This project not improves service delivery, the consolidation of functions will save the city over $200,000 per year. In addition, like most projects this past year, we were able to scale back the project without reducing the benefits to the public. By reducing the original budget by 70 percent, the operational savings realized by this project will pay back the capital cost in less than two years.

I realize that there will still be some critics of the project, who feel like we shouldn't be expending any capital dollars in the current economic environment. However, if we had decided to be penny-wise, we would not only not realize the future cost savings, but likely discourage future development projects from choosing Manteca as a business-friendly destination.

In other words, if you have a project that can save money, be delivered cost-effectively, provide better service to the public, and generate future revenue to the city and jobs to the public, how could we possibly not do it?

Response to Bulletin re:Pedestrian Safety

In Saturday's Manteca Bulletin (click here for link), the editor takes the city to task for not maintaining a sidewalk adjacent to the Jack-in-the-Box on East Yosemite Avenue.

The City of Manteca makes every effort to maintain sidewalks so they are safe for pedestrians. It is not possible, however, for City staff to continually inspect the conditions of every sidewalk in the City. The adjacent property owner is in the best position to be aware of any problems. In fact, State law provides that a property owner is responsible for maintaining and repairing the sidewalk fronting his/her property in such condition that it will not endanger persons or property (Section 5610 of the State of California Streets and Highways Code).

In the case of the sidewalk in front of Jack-in-the Box on East Yosemite Avenue, the leaking backflow device is not owned or maintained by the City, but by the property owner. The City was not aware there was a problem until someone fell. The City has responded by cleaning the sidewalk, placing a barricade at the site to warn pedestrians, and contacting the property owner to ensure that the problem is quickly corrected.

The public should not assume that, just because a problem has existed for a long time, the City is aware of the problem. As a matter of fact, one should assume just the opposite. If the City knows of a problem that creates an unsafe condition, staff will take some corrective action immediately. In the case of overgrown bushes or slippery sidewalks, the City may not be able to completely solve the problem, because staff may have to work with the responsible property owner. At the very least, we will barricade the area to keep the public safe. In the case of cracked or raised sidewalks, the City may not be able to immediately remove the tree and replace the sidewalk, but staff will barricade the area until we can at least grind the raised edge to remove the trip hazard.

The City of Manteca has an easy on-line way to report this type of problem. You can access it using the "contact us" button at the top of the City’s home page at www.ci.manteca.ca.us. You can also call the Public Works Department at 456-8400. During non-business hours, any unsafe condition should be reported to the Police Department on its non-emergency number (456-8100).

The City’s Streets Division has been hard-hit by the budget crisis, but we will respond to unsafe conditions. So please let us know when you see a problem, so that we can, hopefully, fix the problem before someone gets hurt.

State getting ready to pick our pocket again!

Just when we thought we were safe, at least for a couple of months, I was sent this missive from the Capitol:

Local Highway Money is Target Again
By John Wildermuth
Journalist and Political Commentator
Fri, August 14th, 2009

The $1 billion in local highway money the state didn't get in last month's budget agreement could be a target again when the Legislature comes back from its summer recess next week, Darrell Steinberg, the Democratic leader in the state Senate, suggested Wednesday.

Steinberg, joined by local Assemblyman Tom Ammiano, was at a neighborhood health center in San Francisco's Mission District, talking about his suit to recover nearly $500 million Gov. Arnold Schwarzenegger blue-penciled from state health and welfare programs before he signed the budget revisions.

"We could go back to (the highway money),'' he told the crowd of doctors, nurses, patients and various care providers. "That's one way to do this.''

Putting that highway money back into play also would give Steinberg and Senate Democrats a chance to stick it to their colleagues in the Assembly, who tabled the plan to borrow the highway money after Schwarzenegger and the four legislative leaders agreed to it as part of the overall budget deal last month.

More to the point, they dumped the $1 billion in highway funds out of the budget deal after Steinberg had pushed the bill though a reluctant Senate over the frenzied lobbying and loud complaints of mayors, council members and county supervisors from across the state.Not only did the Assembly's decision force the senators to take the heat for a tough vote that ultimately came to nothing, it also opened the way for Schwarzenegger to recover some of that lost money by chopping even deeper into health and welfare programs that Steinberg and other Democrats had fought desperately to save.

Going back to the original budget deal also makes sense because the Senate already has agreed to borrow the highway money, Steinberg said. It would take a simple majority to approve it in the Assembly, which means the Democrats wouldn't need any Republican votes.

If those highway funds could restore the money taken from AIDS prevention and treatment programs, services for battered women and children's health care, what Democrat wouldn't make that choice, Steinberg added, casually turning up the heat on the Assembly. While Schwarzenegger isn't saying yes to any new effort to go after those highway funds, he isn't saying no, either.

"The budget is over, the budget is done,'' said Aaron McLear, a spokesman for the governor.

"But if the economy worsens, we will have to go back to do more cuts and look at other measures.

"Translated from politicalese, that means that while Schwarzenegger won't guarantee to restore any of the current cuts, "other measures" that include another $1 billion in revenues could go a long way toward avoiding additional program trims if - or more likely, when - the Legislature has to go back into this year's budget to deal with more anticipated deficits.

Steinberg and the Democrats already are gearing up to battle any new call for more budget cuts. His suit arguing that Schwarzenegger's vetoes were illegal could go before a judge by the middle of September and he was talking tough to the crowd of supporters in San Francisco,"At some point - and this point is right now - enough is enough,'' he argued. "People who need help have given up enough for the state budget."We're tired of playing defense," Steinberg added. "It's time to go on offense.''

State budget hangover

Most of the politicians and pundits took the week off after the passing of the sham of a state budget. Sunday, the Sacramento Bee was back in the business of focusing lots of energy on the budget. They supplied an op-ed piece, a Dan Walters column and a straight news story. For good measure, they also put together a searchable database which was a compiliation of the hits taken by area cities.

Here are some excerpts from the articles. We'll start with Dan Walters' column:

Gov. Arnold Schwarzenegger assumes the recession will hit bottom late this year with a slow recovery next year. "This is a very uncertain period," Mike Genest, Schwarzenegger's budget chief, said in Fresno last week.

"We think an economic recovery starts in the fourth quarter. If not, we'll be back in a budget crisis."

This recession is not only unusually deep, but unusually wide.

When the housing industry meltdown, centered in California, transmogrified into a full-blown global banking crisis, it affected every segment of the economy, unlike past recessions.
Thus, California has not only seen unemployment skyrocket to levels not seen since the Great Depression – 11.6 percent most recently – but there's been a massive loss of consumer confidence, which has clobbered retail sales. New car sales, for instance, are half of what they were just a few years ago.

"The recovery … depends on the strength and speed of the federal stimulus package and the pace of worldwide economic recovery," said Steve Levy of the Center for the Continuing Study of the California Economy. "There are no indications that private sector activity will turn up soon in the absence of aggressive stimulus efforts or worldwide growth."

Christopher Thornberg of Beacon Economics noted that income taxpayers will be carrying over stock market losses to offset any income gains, and retail sales will be re-benchmarked downward as wary consumers – loaded with debt – divert income, when possible, into debt repayment and savings. Ominously, 10 percent of California's home mortgages are delinquent or worse.

Even were the recession to bottom out statistically in a few months, employment and consumer spending, economists agree, are destined to remain stalled for at least another year. And that probably will mean continuing budget woes for state and local governments, especially the former, whose revenues come primarily from income and sales taxes.

The state Department of Finance is projecting an initial deficit of $7 billion to $8 billion for the 2010-11 fiscal year that begins in 11 months. Even as it continues to struggle with the current year's budget, the department soon will begin drafting its 2010-11 version for the governor to unveil in January.

Click here for the entire Dan Walters column.

Here's the Op-ed piece from SEIU:
As the largest state employee union, SEIU Local 1000 has always advocated for a state government that is effective and efficient while providing quality public services.
But "government efficiency" should not become a code word for frantically decimating services to California residents and throwing money at well- connected private contractors. In the name of increased efficiency, The Bee's editorial accepts as fact the governor's dubious assumptions about privatization, furloughs and the services we provide.
Since January 2008, we have offered plans – largely ignored by the governor – to save hundreds of millions of dollars by reorganizing the state lottery, collecting taxes more efficiently and cutting waste in the state's $34.7 billion contracting process.

Click here for the entire editorial.

There was really no new ground in the news article:
Local governments coping with the shift of billions of dollars to the state of California are eyeing ways to do what consumers have done for years.
They're considering ways to borrow. In the Sacramento region, the state budget's toll on cities and counties is $125 million, a new Bee database shows. That's more than the general fund for the city of Roseville.

Click here for entire article and click here for the searchable database.

Manteca Budget - Next Steps

The state budget is done--at least for a couple of months. Since many of the cuts imposed by the state will actually cost more than they save, and since some of the takings (such as the RDA funds) may be overruled by a judge, there is little doubt the legislature will be back working on the budget again by the first of the year. Even if they make it into 2010 without a problem, they'll be back by April when personal income taxes fall far short of the state's projections--partially because of all the job losses created by the state budget!

In the meantime, we have to finalize the budget for the City of Manteca. As most of you know, we put off adopting a budget until after the state was finished picking our pocket. In addition, we needed to find out how much the assessor would be reducing property values and we wanted to see another quarter of sales tax revenues for Costco, Bass Pro and auto dealers before finalizing revenue projections.

The good news is that our crystal ball was pretty accurate. Other than the major hit on our redevelopment capital fund, our revenues are pretty much what we expected. The bad news is that our revenue is pretty much what we expected. We as a city now face the challenge of providing services in 2009-2010 with revenues similar to 2002-2003. Not only have our labor costs gone up significantly during that time, but we've also added about 13,000 citizens to serve as well. Thus our general fund revenue per citizen is similar to sometime back in the 1990s.

In addition, while I expect revenues to go up someday, the economy doesn't look like it is going to rebound in a big way any time soon. This means property taxes and sales taxes are going to be stagnant--although hopefully they won't continue to drop. But it is likely that our revenues will grow more slowly than our rate of population growth.

So how do we take on this challenge?

With limited resources we have to be sure that we've got our funds focused in the areas most important to the community. Second, we have to ensure that we are continuing to invest in programs and services that promote economic growth, and finally we have to combine our staff resources wherever possible. There can be no duplication or contradiction of efforts. These are not only tasks for today, but tasks we must focus on long term.

In addition, staff has to acknowledge the fact that our compensation has to be in line with our resources. City management and the City Council have spent the last decade ensuring that our salaries were competitive in the marketplace. This allowed us to retain and recruit top flight employees for every position. I can assure you that will continue to provide compensation levels better or equivalent than our peer group cities.

If you've been reading this blog over the past couple months, you'll note that just about every city in the state has asked their employees to help bridge the budget shortfall that nearly EVERY city in the state is facing. To date, our employees have done everything we've asked to help balance the city's budget. However, due to continuing declining revenue, the sacrifices made to date will not be enough to get us through the next fiscal year or two.

We'll be sitting down with all of our employee groups over the next month to see what each group can do to help balance our budget for the next year. The Executive Management team has already committed to come up with a labor cost saving plan from its membership in the next two weeks. Hopefully, we can reach an equitable resolution with the rest of our employees in the next 30 days so that we can present a balanced budget to the City Council by mid-September.

COPS Grant

It always nice to have some good news. Yesterday, I received an email early in the day from our federal government. They were pleased to inform me that we will be receiving $1.479 million over the next three years to fund the cost of four police officers. While we had applied for five officers, we were thrilled to get any funds out of the grant. When we had heard that $8.3 billion in requests were received for $1 billion in grants, we didn't believe that a mid-sized city with an average crime rate would stand a chance.

Apparently, our Police deparment underestimated their ability to put together a great grant proposal! Kudos to our Police staff for a job well done!

In the News...

Budget and pension issues continue to dominate the local government news. Here's a sampling of what the media has been writing about this past week.

The San Bernardino Sun wrote up a summary of the challenges faced by most of the local cities in their region (click here). Employee furloughs, frozen cost of living increases and borrowing from non-General fund sources was a recurring theme in most of the cities. Some have adopted their budgets, but those with budgets will likely need to change them due to the state budget. The cities that haven't increased staffing or have been slow to adjust salaries seem to have the most stable budgets.

The City of Los Angeles has finally reached an agreement with 22,000 workers. As part of the package, cost of living increases were delayed by two years and about 2,400 employees will take early retirement. The changes were needed to deal with a $350 million budget deficit. Click here to read more.

Rohnert Park is laying off 25 employees, mostly in public safety to close their budget gap. Click here to read more.

In Contra Costa County, there is a lot of consternation about the latest listing of retiree salaries. 423 retirees are now earning over $100,000 per year. Read more here.

State Budget Wrap - Local Government dodges one of the bullets!

As you probably know, the State legislature finally approved a revised budget yesterday afternoon. Local government's initial hit was expected to be as much as $5.4 billion--$2.1 billion more than they had been proposing for most of the budget session.

Luckily our local officials decided to not let this happen without a fight, and we ended up greatly reducing the impact on our local citizenry. I believe the Speaker of the Assembly, Karen Bass, summed up the role of local government in the budget battle when she tweeted yesterday:
"local govt 'declared war' on Legislature over cuts."

In order to finish the budget, the legislature was forced to eliminate their theft of $2 billion of highway user taxes over the next two years. We were able to convince the legislature that not only was this a bad idea (since it would virtually eliminate all local road maintenance), but it was likely illegal as well. Locally, this means we don't have another $1 million hole in our budget and we'll be able to keep our street maintenance program in place.

While the legislature spent the past month promising not to borrow our property tax funds, they ended up doing it anyway. They claim that clean up language over the next month will allow us to securitize this loss of $1 million locally. In other words, the state will promise to put this debt near the top of their list of repayments, thereby allowing us to go to Wall Street or other sources and borrow money that the state will promise to repay. If the state follows through, there should be no impact on our upcoming budget.

The one area where we failed to show the state the error of their ways was their theft of redevelopment funds. Back in May, a Superior Court judge ruled that the state's taking of RDA funds was illegal and therefore the $350 million they proposed to steal in 2008-2009 was not going to happen. The state went back to the drawing board and came up with a convoluted scheme that they believe will make the theft legal this time. And since they were mad we beat them in court, they decided to increase the theft by 600 percent!

I believe that we have a better than 50 percent chance of beating them in court again--but it will likely take the better part of the next year to wade through yet another lawsuit. In the meantime, there will likely be 50,000 less construction jobs statewide over the next year while these redevelopment funds are tied up in litigation.

It is the loss of jobs that frustrates me the most. As I've noted in recent blogs, the state is foolishly cutting funds in the areas that can help the state the most. Any economist will tell you that capital dollars circulate through the economy multiple times and bring in additional income tax, sales tax and business taxes to the state. It is likely that their $2 billion RDA take will reduce state revenues by a like amount.

In addition, I'm worried that the state workers are going to further depress the economy by reducing services to the state and the citizens. We've already been getting vibes that CalTrans is going to be using the state imposed Friday furloughs as an excuse to slow down their already glacial pace of processing environmental reviews for stimulus projects. They are also going to start charging local entities for the services they are supposed to providing through their own budget. It is likely that many transportation projects will fall behind schedule and hundreds of thousands of road construction jobs will be delayed by a year -- all because CalTrans refuses to find a way to work harder and smarter during these lean budget times.

I'm also confident that we'll be dealing with the budget mess again before the end of the year. It is likely that many of their budget fixes will not result in cost savings to the state and that their cutting of funds that spur jobs will further reduce the state's treasury in the coming year.

In the short run though, we'll enjoy our victories for a couple of days and continue to find ways to keep our service levels up despite the thefts from our state government.

State Budget Mess

As the legislature considers the state budget, I would recommend that every member read the first and last paragraph in Dan Walters' Tuesday Sac Bee column:

Were California a corporation, rather than a state, its officers would be playing tiddlywinks with Bernie Madoff in the federal slammer, having engaged in years of hide-the-pea accounting tricks, under-the-table loans and other gimmicks to cover up the state's perpetual operating deficits…

The most damning aspect of this tiresome situation is that the best budget our political system can produce is deceptive and fundamentally dishonest. It should tell us that we have a much bigger problem than an unbalanced budget.

The rest of us should think long and hard about the “most recommended” comment that accompanied this article:

"Why is it that WA, a “blue” and progressive state, can maintain highways, a ferry system, and three separate university systems without imposition of a personal income tax? Why does that State attract and keep businesses like Microsoft and Boeing, which create high paying jobs and generate significant revenues at state and local levels? Why does WA, where eco-consciousness is paramount, have thriving forest products, agricultural and fishing industries that also provide jobs and revenues for government? Why does CA have none of this? Perhaps it is that WA is governed by a part-time Legislature that convenes bi-annually, composed of citizens who must work for a living, rather than a pack of venal professional politicians whose only job is to put their corrupt interests ahead of the public good. May be it is that WA restricts State functions that duplicate federal governance, eliminating a duplicate tier of regulation that inhibits revenue generating enterprises. Maybe it’s both."

I’m having a hard time disagreeing with anything said in the article or in the reader comment above!

To read the entire article, click here:

http://www.sacbee.com/walters/story/2041808.html

The Wall Street Journal also weighed in on the state budget debacle (click here for story), hinting that the state's solution will likely exacerbate California's staggering unemployment rate:

The budget deal struck by California Gov. Arnold Schwarzenegger and statehouse leaders is expected to hurt a broad band of state residents and crimp the state's recovery from the current, deep recession.

Fiscal experts said the negative effects of the budget plan, crafted in an attempt to keep the state solvent, will offset much of the intended beneficial effects of President Barack Obama's federal stimulus package.

California's economic decline, economists predicted, will last longer than downturns in other states. They said the proposed cuts in the budget deal will compound the continuing impact from other recessionary blows, including an 11.6% state unemployment rate, widespread foreclosures on homes and depressed real-estate values.

In a second Journal article, focusing on the budget's impact on local government, they pointed out:

The state's cut into local funds, economists said, could have an outsized effect in delaying California's recovery.

Los Angeles city officials in said they expect to lose about 2,300 construction jobs because of a proposal in the budget agreement to take $72 million of its funds for redevelopment projects. The city's Community Redevelopment Agency has a $688 million budget, but most of that money goes toward paying off debt service on other projects underway in the nation's second-largest city.

The $72 million represents what is needed to fund new projects, said Cecilia Estolano, the agency's chief executive. Redevelopment funds will be taken from many other cities across California under the budget deal. "We're very concerned the state will be in essence shutting down the one economic-development program the state of California has during the worst recession in 70 years," Ms. Estolano said.

Both articles point out the absurdity of this budget "solution". The state managed to cut the items most likely to dig the state out of its recession, while protecting the wasteful duplicative programs in Sacramento. As I pointed out in Sunday's blog, most of their solutions will actually increase the deficit, leading to more cuts before the middle of the budget year.

This method of budget cutting isn't surprising given who really wears the pants in Sacramento--which is the powerful unions that represent state workers. It is no coincidence that all of the cutting and layoffs are occurring at the local level, while not one state worker has lost their job. Hopefully, they are done bludgeoning local government and will be forced to start cutting the fat in the next round of cuts.

Big 5 comes up with Budget Scheme

The governor and the legislature have finalized their budget that essentially protects state workers and destroys many cost-effective services at the local level.

Since most of their cuts are to programs that actually save the state money (see Sunday's blog), we'll likely see the legislature back in session before the end of the year trying to fix the new mess they just created. In the meantime, it looks like they are going to "borrow" about $1 million of our property tax revenues, steal all of our funds dedicated to road maintenance ($1.1 million a year for two years) and grab $5.5 million in Redevelopment funds that a judge already told them that they can't touch!

Here's a press release from the League of Cities about the budget that will presented to the legislature this week:

FOR IMMEDIATE RELEASE

League of California Cities Condemns Proposed State Budget as Reckless Ponzi Scheme

SACRAMENTO — California’s legislative leaders and Gov. Arnold Schwarzenegger have agreed on a proposal to "balance" the state budget with illegal raids of local government gas tax, public transit and redevelopment funds, according to recent court decisions and a legal analysis obtained by the League of California Cities, as well as a "loan" of local government property taxes that is unlikely to be repaid. By relying on illegal mechanisms and fund shifts, this budget resembles a Ponzi scheme that the League of California Cities condemns in the strongest possible terms.

The classic Ponzi scheme works on the "rob-Peter-to-pay-Paul" principle. Money from new investors is used to pay off earlier investors until the whole scheme collapses. Meeting in secret, the Big Five have put together a state budget that relies on unconstitutional seizures of local taxpayers’ funds or "loans" from local taxpayers to finance today’s state operating expenses. This recipe for disaster passes off responsibility for repayment or complying with future court orders to reimburse local governments to future governors, legislatures and taxpayers.
As they have in the past, courts are expected to enjoin the state from implementing its unconstitutional raids of local gas tax, public transit and redevelopment funds. Further, given California’s negative fiscal outlook, the League believes it is illusory to maintain that the state will be in a position to repay the "borrowed" property tax funds in a few years.

League President and Rolling Hills Estates Mayor Judith Mitchell reacted strongly to the budget proposal. "Cities across the state have suffered deep revenue losses and acted responsibly to cut spending by laying off staff, shutting public facilities, and eliminating programs. While some at the state level will try to pass this proposed state budget off as a major breakthrough, city leaders know it only passes the buck and the problem to the future. As an elected official who took an oath to protect and defend the state constitution, I am embarrassed that any state officials would propose a blatantly unconstitutional budget that promises to fail within weeks of its adoption."

"This budget proposal is a reckless Ponzi scheme because it depends on unconstitutional seizure of billions in local revenues that the voters dedicated to specific purposes and questionable borrowing provisions," said Chris McKenzie, League executive director. "It also puts government’s most important responsibility—protecting public safety—at risk because it takes local property tax revenues that should be used to patrol the neighborhoods of the cities of California and to respond to the many fire, police and emergency medical calls that cities in California receive. We have assured state officials we will see them in court the day after a budget is signed if it contains illegal provisions."

Established in 1898, the League of California Cities is a nonprofit statewide association that advocates for cities with the state and federal governments and provides education and training services to elected and appointed city officials.

State Budget

The reports are coming into us fast and furious as the state budget saga continues. While the state legislature argues over school funding, they are also planning on stealing as much as $3 billion from local government. The form of the $3 billion take is yet to be determined, but the latest discussions seem to be focusing on a huge hit on our redevelopment funds.

The amounts that they are talking about for redevelopment could put many agency bonds into default, so the legislature may be using RDA funds as hostage to force cities to accept a stripping of highway and road funds instead.

We'll try to keep you informed of this fluid situation, but it seems like the scenarios are going to be changing on an hourly basis. The bottom line is that Manteca could be losing over $8 million in funding by the time this horrific budget is passed. Oh and by the way, our lobbyists are concerned that revenue projections are so flimsy in Sacramento, that whatever budget is passed could be out of balance again in a matter of months. There is a chance that we could be looking at a scenario where the budget starts getting revised every 4-6 months until the economy stabilizes, thus leaving us in a state of uncertainty for the next couple of years.

Click here for the latest report from Sacramento.

Distressed City Exemption?

"A lack of planning on your part does not constitute an emergency on my part"

I'm sure that we've all seen this saying posted on someone's cubicle at the office, on a refrigerator magnet strategicaly placed by mom, or on a t-shirt at the ballgame. Well, I'm hoping that the City of Vallejo receives this same message as they walk the halls of the legislature.

Vallejo Mayor Osby Davis met with the Governor's deputy chief of staff and his assembly representative this past week to ask for relief from the state's proposal to borrow or take local government revenues.

According to the Contra Costa Times:
"I explained Vallejo's financial situation, how four years ago, we started making cuts and now we have nothing left to cut," Davis said, shortly after returning from his trip on Tuesday and Wednesday. "Any cuts would be direct layoffs ..."

Schwarzenegger staffer Michael Prosio asked Davis if the city would be able to turn around and borrow any money the state took away. Davis said the city's bankruptcy filing would make such a move next to impossible.

Evans, Assembly budget committee chairwoman, "is trying to keep Vallejo off the table," Davis said. He referred to a plan to enact a "distressed city exemption."

Davis said the problem with that plan is that every city could claim to be distressed.

I find it amazing that Vallejo is asking for special treatment. Frankly, most of their problems are of their own making. They continued to approve generous labor contracts during times that city revenues were contining to tank due to military base closures. They continued to make questionable real estate deals with Six Flags and others. The Council ignored the advice of city staff until bankruptcy was their only remaining option.

Frankly, I believe that any city leader that has the "chutzpah" to ask for a special exemption of this type is probably still in denial and will likely continue to create more financial armageddon. We'll continue to follow this story and let you know if anything transpires. I'm sure every local agency in the state will be watching this closely as well.

To read the full news story, click here.

The latest numbers

While I'm trying NOT to get caught up in the daily grind of the state budget, it is impossible to ignore the ever increasing budget gap. The State Controller's report for June revenues shows that a $1.1 billion shortfall in revenues.

Here's the latest on this issue from the Sacramento Bee:
The state's chief sources of revenue, income and sales taxes, fell in June more than $1 billion below estimates that were scarcely a month old, state Controller John Chiang reported today, exacerbating the state's budget deficit crisis.
Personal income taxes in June were $987 million below what Gov. Arnold Schwarzenegger's administration had estimated in its May revision of the state budget, while sales taxes were down $154 billion.
The two shortfalls were offset, in part, by $1.31 billion in corporate taxes that were 41.2 percent above estimates -- attributed by Chiang to one-time payments by corporations to avoid a new state penalty for underpayment.
The below-expectations revenues make the state's 2009-10 budget deficit, pegged by the administration at $26.3 billion, that much worse. Schwarzenegger and lawmakers are stalemated over how to deal with the gap. Chiang's office has begun issuing IOUs in lieu of checks to many state creditors because of a severe cash crunch.
"California continues to pay for its history of unbalanced budgets," Chiang said, "The state spent $10.4 billion more than it collected last year alone, and is now without enough cash to cover all of its payment obligations. Our major sources of revenue have continued their trend downward, leaving no viable option but to craft a new budget that recognizes California's recovery has yet to begin."
The full monthly controller's office report may be found here.

On the CalPERS front, things aren't much better. Here's another post from the Bee:
California's 40 state and local public employee pension systems vary widely in their assumptions of future earnings and other factors, including inflation, and San Diego-based actuarial consultant Rick Roeder has generated a system to rank them by degree of optimism.
By Roeder's calculations the immense California Public Employees' Retirement System (CalPERS) is one of the most optimistic, while CalPERS-managed systems for legislators and judges are among the most conservative and the state's other big system, the California State Teachers' Retirement System (CalSTRS) is in the middle.
Roeder's explanation of how these assumptions affect the health of the retirement systems, as well as the detailed rankings, are available here.

City Pension Standards

The seven City Managers in San Joaquin County and the County Administrator meet monthly to discuss issues of mutual interest. Yesterday, we discussed a proposal developed by the San Diego City/County Management Association. This proposal discusses the elephant in the room of every city labor agreement--our inability to continue supporting our current pension plans. As I've noted before, not only are these benefits unsustainable, government workers are getting vilified in the media for having defined benefit plans far superior to anything in the private sector.

As noted in their report which you can access here:
Their group is recommending a second tier pension offering that could be implemented by the great majority of cities. This pension program would not affect existing city employees who have vested rights to the current pension program, but would affect new employees after a date certain and be both sustainable and defensible.

The study goes on to provide a great background on the evolution of government pension systems and how they've changed over the years. It goes on to support the continuance of defined benefit versus defined contribution programs for delivering benefits as defined benefit programs are professionally managed. They also offer lower fees and cover disability retirements and death benefits--which are not typically provided in defined contribution programs.

Essentially it recommends a return to the benefits that were available pre-1999 when most of the pension benefits were upgraded in conjunction with a once in a generation surge in the stock market. I realize that this will not sit well with many on opposite ends of the issue. I'm certain that labor groups will be reticent to reduce benefits for future employees and be concerned about the resentment that might emanate from those hired under the new plan. I'm sure there will also be many who believe that government employees should be relegated to the same defined contribution plans now common in the private sector.

There is no doubt in my mind that you'll be hearing a lot more of this debate in the near future. As our available revenues continue to flounder and health and pension costs continue to increase, we'll be faced with very difficult budget decisions in the future. In my mind, updating the pension system is a necessity and the sooner we begin to face this issue, the sooner we can resolve it and move on to other budget challenges.

No end in sight for State Budget mess

Here's a great post from the Sac Bee's Capitol alert, which realistically forecasts a long budget stalemate:

With budget talks breaking down this week and the big June 30 marker having come and gone, the question on a lot of minds is where the next pressure points lie.
Mike Zapler at the Mercury News laid out scenarios today, and there wasn't a lot of good news for anyone hoping for a quick resolution.
Some thought that the next pressure point would be this Friday, the final date banks said they would accept IOUs as cash for customers. But there hasn't been a flurry of talks this week, and Assembly Speaker Karen Bass walked away from negotiations as a form of protest against the governor's position. So it doesn't appear that Friday looms very large as a deadline.
Department of Finance Director Mike Genest said last week the state would lose an opportunity to retroactively cut $1 billion in CSU and UC for 2008-09 after July, making July 31 another potential pressure point.
The Fitch Ratings downgrade release on Monday laid out a long summer scenario, noting that the state can get by on IOUs through September. That means California will have enough cash to make its constitutionally-required priority payments while satisfying its non-priority demands with IOUs. If legislative leaders don't feel like the world will collapse with the current IOU scenario, it could become a typical budget year in which negotiations drag on for weeks.
Dan Schnur, director of the Unruh Institute of Politics at the University of Southern California, said the Capitol atmosphere doesn't feel as desperate as it did when the state last issued IOUs in 1992. At that time, Schnur was working for former Gov. Pete Wilson.
"Back in my day, when the state issued IOUs in the early '90s, it rained hell down on the state Capitol," he said. "There was nonstop media coverage and public outcry which resulted in significant pressure for the relevant players to get back to work. In the absence of that same attention, the negotiators don't feel the same pressure."
There is at least one notable difference between then and now -- California paid state employees then with IOUs, a practice that courts have since banned.
Schnur said he also thought that major news events overtook budget coverage in the last month. Pop singer Michael Jackson died June 25. Republican vice presidential candidate Sarah Palin announced she would step down as Alaska governor on July 3.
"Compared to Michael Jackson and Sarah Palin, the state paying its bills with IOUs just isn't that exciting," he said. "On one hand, it's a little too facile (a point), but on the other hand, there really was a lot more competition for news and media coverage."
Of course, the state lasted two months with IOUs in 1992, and we're still only a week into them this year.
Schnur also noted that after lawmakers nearly reached a deal in the run-up to June 30, it was natural this week for negotiators to retrench and take a step back.
Former Schwarzenegger communications director Rob Stutzman said he thought the impasse would continue for a while. Schwarzenegger seems resolute in his demand for permanent changes, and "at this point, he'd be crazy not to be. He'd look bad by not signing those bills at the end of the fiscal year unless he gets a grander deal in the end."
For now, leaders are meeting sporadically, and Schwarzenegger and Bass are battling for media attention. Bass on Monday skipped Big 5 but held a well-attended press conference to bash the governor's stance on budget talks, while her office produced a video attacking Schwarzenegger and her spokeswoman sent a memo suggesting the governor's press secretary made sexist criticisms.
Schwarzenegger held a press conference Monday to promote his changes to In-Home Supportive Services and held a similar event Wednesday to talk about reducing welfare rolls.

This isn't good news at all for us at the local level. While we've done everything we can to balance our budgets and minimize impacts on both our employees and our residents, we really can't adopt a meaningful budget until the state finishes their budget. In past years, we could just ignore the mess at the state, but our friends in Sacramento are not going to let that happen this year. Every budget solution contemplates picking our pocket and taking away substantial revenues from local government.

While they started out just talking about "borrowing" property tax dollars, they are now more focused on outright thefts such as the Highway User Tax and our Redevelopment Tax Increment. In each case, the takings would be devestating to anyone who lives in a city--which of course is pretty much everyone in the state. The scary part is that the proposals get more outrageous by the day. Previously, they were talking about a $350 million illegal raid of Redevelopment funds. Now they are proposing a $1.3 billion theft. This is a dollar amount that equates to more than $4 million out of Manteca' s pocket--far more than the $1 million we would have lost via the "borrowing" of property taxes.

If the state actually took this huge chunk of redevelopment funds, it would likely put 25% to 50% of all the redevelopment agencies into the red and put a lot of bonds into default. The state's level of irresponsibility is now reaching a level that could take down every other government entity in the state. Let's hope that cooler heads prevail at some point and that the state attempts to clean up their own mess without the huge collateral damage they are now proposing.

El Monte avoids bankruptcy

We reported in an earlier blog that the City of El Monte was on the verge of filing for bankruptcy if they weren't able to get salary concessions from their Police officers.

It looks like the threat worked as the union agreed to concessions last week. However, besides salary concessions, there will still need to be over 100 layoffs and the closure of one fire station to close the $12 million budget gap. All of these cuts were necessary despite getting the voters to approve a sales tax increase that raises El Monte's rate to a staggering 10.25%.

Other employees had already taken 10 percent pay cuts and agreed to pay for a greater portion of their medical. El Monte has been heavily dependent on sales tax revenue and the economic bust has reduced their sales tax by $5.5 million in the current year.

To read more about El Monte, click here.

July 3rd Activities

Holiday Weekend Events: In case you haven’t heard, Manteca will celebrate Independence Day this Friday, July 3. Events planned for the day range from a pancake breakfast and parade, to a day full of family activities at Big League Dreams Sports Park, culminating with an aerial fireworks display. The following are the specifics for the July 3 events:

The Kiwanis Club of Manteca’s Independence Day celebration pancake breakfast will be held from 7 to 11 a.m. at David and Sylvia’s Family Dining restaurant at 1020 N. Main St. in the Cardoza Shopping Center. A delicious breakfast of pancakes, eggs, ham, coffee milk and juice will be served. Tickets are $7 for adults (12 years and older) and $4 for children. Drive-through service is also available.

The Sunrise Kiwanis Independence Day parade will start at 10 a.m. The parade starts on North Main Street at Jason Street, and proceeds south on Main Street to Center Street, heading west on Center Street, ending at Library Park. Enjoy your pancake breakfast and then find a nice spot along Main Street to sit and enjoy the parade!

The Independence Day concert will be provided by the Manteca Community Choir at 2 p.m. at the Manteca Presbyterian Church at North and Main streets. The event is free to attend, however donations will be accepted.

Family celebration at Big League Dreams – this event takes place from 4 to 10:30 p.m. at the Big League Dreams Sports Complex on Milo Candini Drive off of Daniels Street. Admission is $2 for adults, $1 for children (13 to 17), and free to those 12 years old and under. There will be entertainment from 4 to 9:45 p.m., not to mention food, games, and 21 vendor booths.

Aerial fireworks display – starting after dusk. The fireworks will be shot off from over the wastewater treatment plant. If you happen to be in the stands at Big League Dreams, you may have the best seat in town!

I realize that a lot of local residents are unhappy about the City's decision to hold the aerial fireworks display on July 3rd instead of July 4th. The date was moved to the 3rd to make the project financially feasible. In these tough budget times, nearly every city in our region has cancelled their fireworks display. In order to save the event here in Manteca, the event was moved to the 3rd in order to avoid having to pay our public safety officers holiday pay. This reduction in cost allowed us to keep the celebration this year.

Hopefully, we can return the event to the 4th in better budget times.

Stop the State Raid of Gas Tax Funds

LEAGUE BOARD VOTES UNANIMOUSLY TO CHALLENGE RAID OF LOCAL GAS TAX FUNDS
Bypass of Voter-Approved Ballot Propositions at Issue

The news media flocked as more than 100 city officials joined with the League of California Cities’ board of directors to announce the board’s unanimous vote to take legal action, if necessary, to challenge the constitutionality of a key component of the budget proposed by the Budget Conference Committee to seize $1.7 billion of the local share of the highway users, or gas, tax that is used to maintain local streets and roads. The press conference was held on Thursday, June 25, at the Sacramento Convention Center during the League’s policy committee meetings.

State leaders have proposed bypassing the voter-imposed restrictions to use local gas tax funds to pay off the state’s highway bonds and reimburse the state general fund—a questionable move that seems designed to give the appearance of having a balanced budget. The action comes as close to 130 have already passed resolutions directing their respective city attorneys to cooperate with the League, other cities and counties in pursuing litigation to have any raid of local gas tax funds declared unconstitutional and invalid.

Nielsen, Merksamer, Parrinello, Mueller & Naylor, LLP, a law firm specializing in ballot measure and election matters, concluded that in both 1974 and 1998 voters imposed restrictions on the state’s ability to use gas taxes for debt service on bonds and to divert local gas taxes for the state general fund. The opinion has been shared with all legislators, the Budget Conference Committee, and Gov. Arnold Schwarzenegger. It is online at www.cacities.org/HUTAopinion

Thursday’s press conference carried a simple yet strong message: DON’T KICK THE CAN DOWN THE ROAD!

The Sacramento Bee’s Capitol Alert shortly after the news conference posted “California cities vow to sue if state siphons gas tax funds” www.sacbee.com/1089/story/1977103.html. The League expects considerable coverage later Thursday and Friday based on press attendance at the event.

During the press event, League President Judy Mitchell was flanked by a very large group of city officials all holding “Save Your City” signs. President Mitchell told reporters that the Legislature should adopt a credible budget that is balanced with a realistic mix of state, not local revenues.

When she finished her remarks she passed Modesto Mayor and League Second Vice President Jim Ridenour a can labeled with Save Your City on one side and a quote from the Governor on the other side that read: "I urged the legislature to take this seriously and to not ... kick the can down the road, as they have done in the past but let's solve the problem." Fresno Bee, June 11, 2009.

Mayor Ridenour said that his city will literally go dark if gas taxes are seized because they will be forced to shut off 12,000 street lights. He told reporters that cities are not a state program but separate governments that have suffered the same drastic revenue losses as the state.

The Modesto mayor ended his remarks by giving the can to Clovis City Council Member Nathan Magsig. The council member explained to reporters how his county’s (Fresno) unemployment rate has skyrocketed to 15.4 percent and that the public works projects funded with gas tax are imperative to keeping folks working. He ended his remarks by urging the Legislature to reject these unconstitutional job killing proposals because the promised savings are illusory and will only cause widespread economic harm.

League Executive Director Chris McKenzie was the final speaker and summarized the League’s position.

Press present at the news conference included:

The Sacramento Bee
Capitol Weekly
KFBK-AM
KCRA-TV
Fox 40-TV
Public CEO
Capitol Television News Service

Capitol Public Radio also conducted a phone interview with Chris McKenzie following the news conference. The Riverside Press Enterprise is running a story on Friday, June 26.

Budget Roundups

July 1 is just around the corner, and for most cities, that means a deadline to pass a budget for the next fiscal year. While every city has a unique set of financial circumstances, there are definitely some recurring themes as we review cities throughout the state.

Every city has seen a drop in revenue, I've yet to find one yet who actually is expecting more money in next year's general fund. Since labor is the biggest cost for every city, every city is looking at the three ways you can reduce labor costs: holding positions vacant, reducing employee compensation, or layoffs. While many cities are dipping into their reserves to reduce the impact on services, the deficits faced by most cities can't be covered solely by reserve funds.

Here is a quick summary of what cities across the state did with their budget this week:

Stockton's budget is $45 million than last year. Parks, street maintenance and library programs are being drastically reduced and 55 police officers are losing their jobs. Read about it here.

Lodi's police officers will be taking furloughs and the Fire Department will be browning out stations when staff levels are not sufficient. Here's more about their $2.4 million in budget reductions.

Modesto's story is very similar to Stockton with huge cuts in most services. Ten police officers will be laid off due to the Police union's refusal to reduce compensation. Here's more details.

Watsonville staved off a reduction in their fire department force by agreeing to a 7.5% pay cut. Read more here.

Sacramento firefighters refused to take a pay cut. Consequently, 50 firefighters will lose their jobs and 18 will be demoted. More details here.

Eureka hasn't resolved their budget woes yet. However, the firefighters have agreed to give up their holiday pay. Read the story here.

Santa Barbara adopted their budget, but acknowledged that it is already out of balance due to continuing reductions in revenue. Read here to learn more about the labor concessions to date to help reduce their expenditures.

Irvine's labor groups all agreed to freeze salaries, but that still left a $13 million hole in their budget. A majority of the City Council decided to maintain current service levels by using reserves to plug the gap. Read more details here.

Vallejo's budget continues to spin downward. Despite drastic cuts over the past year, 26 more layoffs are proposed. Read it here.

In Los Angeles, the bad news is that 1600 positions are being eliminated. The good news is that 1200 of the positions were already unfilled and 324 of the remaining 400 employees were able to move to other jobs within the city. Here are the details.

Burbank seems to be better off than most cities. The majority of cuts in their budget were met by keeping positions vacant. Their larger issue is keeping their enterprise funds afloat via rate increases. Read more here.

South of San Francisco in San Mateo County, nearly every fire department is looking at possible brownouts and reductions in force. Read more here.

In San Francisco, the debate between cutting public safety and cutting social programs continues. Here is an article which critiques the current staffing levels in the fire department.

$1.9 Billion hit for State, economic boost for Manteca?

Here is an update on what is happening with the long-standing federal lawsuit over health care for state prisoners. This decision will not only have a major impact on the state budget, but it will also have a major impact on San Joaquin County and Manteca.

If the settlement is approved, the old women's prison northeast of Manteca will be converted to a prison hospital, generating nearly 1800 family wage jobs in the health profession. County officials claim it will negatively impact the County hospital as the state pays far higher wages for health care workers. Others welcome the additional jobs as it will boost payroll countywide--particularly in south County where most of the workers will likely reside.

Judge sets deadline for Calif. prison decision
By DON THOMPSON Associated Press Writer SACRAMENTO -- A federal judge on Tuesday gave the Schwarzenegger administration 15 days to sign an agreement intended to reform the health care system <http://topics.sacbee.com/health+care+system/> for California inmates and end a long and costly legal dispute.
Failure to do so would prompt a potential raid on the state treasury, U.S. District Judge Lawrence Karlton warned.
Corrections Secretary Matthew Cate negotiated the tentative agreement last month with J. Clark Kelso, the court-appointed receiver overseeing prison medical reform.
Benjamin Rice, <http://topics.sacbee.com/Benjamin+Rice/> general counsel for the Department of Corrections and Rehabilitation, said the administration and the state controller's office are reviewing the agreement. The terms haven't changed, he said, nor has it been rejected.
Karlton's patience wore thin when Deputy Attorney General Debbie Vorous said she could not say why the document had not been signed.
"This is intolerable," the judge said.
He gave the state three months to present an alternative if it won't sign the tentative agreement.
"They better come in with a plan with real money. Otherwise, I'm going to start eating into their budget in a real dramatic way," Karlton said during a hearing in federal court in Sacramento.
Seconds later, the visibly upset judge took a breath and said, "Take that back. I'm not threatening anything." It was one of many times during the hour-long hearing that Karlton tried to restrain himself.
"If I sound terribly frustrated, it's because I am," Karlton said at another point after raising his voice.
The agreement would end a series of lawsuits that stemmed from allegations of inadequate care. Federal courts subsequently found the care so negligent that it violated prisoners' civil rights and was a direct cause of inmate deaths.
The $1.9 billion compromise reached by the receiver and Schwarzenegger's corrections secretary calls for building two prison hospitals for 3,400 physically and mentally ill inmates.
It represents a much less ambitious plan than the one originally proposed by the receiver. Under the first plan, the state would have spent $6 billion to build seven hospitals for 10,000 ailing inmates.
Both sides said the compromise was an acknowledgment of fiscal reality, as California faces a $24.3 billion deficit and steep cuts to schools, parks and social programs.
In addition to improving medical and mental health care, the tentative agreement would end competing lawsuits between Gov. Arnold Schwarzenegger and Kelso. The receiver is threatening to seek a contempt of court ruling if Schwarzenegger won't turn over money for prison medical centers. Schwarzenegger is seeking a court order to end the receivership.
At the same time, state Attorney General Jerry Brown has said he will appeal to the U.S. Supreme Court if federal judges seek to raid the state treasury unilaterally.
Under the agreement, the receiver would agree to shift many of his employees and duties back to state control within six months.
Attorneys said they believe the administration has until July 1 to sign the agreement, although the exact date was unclear from Karlton's verbal order.
"We're very close. The state's had this albatross around it's neck for about 15 years," Kelso said in an interview. "The hopeful or good news is we're about a signature away from solving this problem once and for all."
Karlton said he was encouraged by the administration's shorter-term plans, also presented in court Tuesday, to improve care for mentally ill inmates. But he warned that the administration is now obligated to meet the deadlines it has set for itself.
"Those are orders of the court that must be obeyed - not hoped for, not prayed for - obeyed," the judge said. "I'm not kidding."

Revenge of the State

As I noted in one of Sunday's posts, the Governor seems to be backing off of his proposal to "borrow" a couple of billion dollars from local government. The legislature has made it clear that they don't like the idea.

Unfortunately, the state and the legislature are finding other ways to tap the dollars out of us instead. For example, CalTrans has stopped performing certain studies for freeway improvements, that will likely cost Manteca at least $100 grand this year. On the public safety front, they'll be gouging us on booking fees and charging for the crime lab, adding over $130K per year to our costs. I'm sure we'll be learning about lots of other cuts as the summer continues.

All this is in addition to their theft of road maintenance funds. As noted in the Bulletin today, the Council has taken action to support the League of Cities action to litigate this taking of funds. The state is also taking another shot at our redevelopment funds. In early May, a judge ruled that they couldn't take our RDA funds. Here is the latest from our association that protects our redevelopment funds:

On Monday, June 15, the Budget Conference Committee agreed to include language in a budget trailer bill to take $350 million in redevelopment funds as ERAF shifts for each of three years—the current fiscal year plus fiscal years 2009-10 and 2010-11. The total take from redevelopment agencies would be an astounding $1.05 billion!

The Committee apparently believes that language directing the money be spent on schools in redevelopment project areas would address the Constitutional challenge made by the California Redevelopment Association (CRA). CRA’s attorneys disagree.

The vote was 6-0, with 4 abstentions along party lines. All Democratic members voted for taking redevelopment funds for three years as follows: Committee Chair and Assembly Member Noreen Evans, Vice Chair and Senator Denise Moreno Ducheny, Senator Mark Leno (D-San Francisco), Senator Alan Lowenthal (D-Long Beach), Assembly Member Bob Blumenfield (D-Van Nuys), and Assembly Member Kevin De León (D-Los Angeles). All Republican members of the Committee abstained and did not announce their position on the take.

Once again, there is no bill language to review, no bill number, and no author. For the time-being, agencies should assume amounts to be taken are triple the amounts estimated for this year’s ERAF shift that was overturned in court.

This proposal would extract over $1.3 million per year from our Redevelopment Agency. I'm confident that we'll be able to win in court on both ERAF and the road maintenance funds. However, I'm not confident we'll be able to go to court before the state finalizes its budget. As this is a fast moving situation, I'll continue to update the blog as things evolve.

In the News

Lots of budget deliberations are wrapping up right now, giving us plenty of budget news to share with you.

In San Francisco, there is a lot of heat being generated over the large cuts being made to public safety budgets. Click here and/or here for stories related to this issue.

Up in Yolo County, Woodland is taking a decidely different approach than Manteca. Fire overtime is being increased while hours at the planning counter are being significantly reduced. While salary adjustments are on the table, nothing seems to be resolved yet. Read more here.

In Watsonville, fire staffing is being cut with one crew being reduced down to rescue vehicle status. Other bargaining groups were able to cut a deal with the city, but not fire. Read more about it here.

In Santa Barbara, the discussions have devolved down to public safety versus other services. So far, the Council has opted to treat public safety on the same basis as other departments. Here's the story.

Pacifica is still attempting to reduce labor costs and debating the need for in-house legal services. It looks like their reserve fund will be taking a big hit no matter what they decide. To read, click here.

In Santa Rosa, the budget is now balanced, but they are still recommending to charge a fee for fire paramedic services. Read more here.

Here in Manteca, as I've noted before, our City Council will be considering a continuing resolution tomorrow night. This resolution basically keeps the current year spending in place until a final budget is approved. In the meantime, we'll be waiting for final numbers on our property tax collections and updated sales tax information. Once this information is in place, (likely in August) we'll determine our budget gap and what cut in labor costs will be needed to balance our budget. Hopefully, we'll have agreements in place with our labor groups by September that will preserve our workforce and provide excellent service to the community. The final budget should be presented for approval by late September or early October.

Glimmer of Hope regarding the State raid of City Funds

Here is the latest from the Sacramento Bee:

The latest on California politics and government
June 12, 2009
Governor willing to abandon $2 billion raid -- maybe
Gov. Arnold Schwarzenegger said Friday that he is willing to abandon his budget-balancing proposal to borrow $2 billion from local government -- if lawmakers can agree on an alternative.
Schwarzenegger addressed the issue during a question-and-answer session that followed an Escondido speech he gave about the urgent need to mend the state's $24 billion budget hole this month.
"By the way, this is not yet a 100 percent thing," Schwarzenegger told a questioner who complained about the proposed raid of property tax revenue from cities, counties and special districts.
"My Republican colleagues have said they don't like that idea of borrowing from local government, and my Democratic friends have also said that they don't like to borrow from local government.
"So if both parties don't like to borrow from local government, of course we won't borrow from local government, that's clear," Schwarzenegger said.
The governor said the state's finance director, Mike Genest, has developed a list of potential new cuts - in areas ranging from foster care to state employee health care - that could negate the need to borrow from local government.
Aaron McLear, Schwarzenegger's spokesman, said the governor never has wanted to borrow from local government but wants to impress upon lawmakers the trade offs necessary to replace that $2 billion.
"What the governor is doing is stepping in, saying, 'If you don't want to do that, then here are the cuts it would take to avoid that,'" McLear said.
"This is really just a part of negotiation," he added. This is not him backing off of anything, or him changing anything. We need to start negotiating."

League of California Cities Division Meeting

State Controller John Chiang was the keynote speaker at last night's League of California Cities Division Meeting. This a quarterly meeting of city councilmembers and senior staff from San Joaquin, Stanislaus and Merced counties.

Chiang's address was both enlightening and sobering. State tax collections were $827 million below projections in May--further exacerbating the state's budget and cash crisis. As the Controller, it is Chiang's responsibility for the state to have the cash on hand to pay its bills. With a budget that hasn't been meeting projections all year, Chiang now projects that the state will be out of money by July 28. He noted that education and debt service has first and second call on cash coming into the state. Money that cities and counties receive from the state are further down the food chain.

If a balanced state budget isn't approved within the next few weeks, there won't be time for the state to pull together a financing plan to borrow cash by the end of July. The Governor has also ruled out a backup financing plan that could potentially get the state cash in the event the budget isn't approved shortly (click here for more details).

Chiang noted that we are now paying the price for state budget actions that began in 1999. At the peak of the dot com boom, Governor Gray Davis warned that the spike in state revenues was not sustainable. He recommended that the surplus cash be put towards one time expenditures. Instead, the legislature cut the vehicle license fee and slashed income tax rates to cut $6 billion in ongoing revenue out of the budget. When the boom ended a year later, we had the first of the multi-billion dollar state deficits. The state cash flow has been falling behind ever since and we are now feeling the cumulative effect of ten years of revenue shortages.

Assemblywoman Anna Caballero, D-Salinas also spoke at the meeting. She is contacting all of the former local government officials now in the state legislature (on her side of the aisle) and hoping to get them to oppose the state's "borrowing" of city property tax revenues. She also talked at great length about the broken budget process and its impact on all of California. All local officials in attendance were encouraged to hold face to face meetings with our legislators and let them know the devastating impact their raid of local funds would have on our citizens.

I felt very encouraged that the state officials in attendance understood our plight at the local level. It is now our responsibility to communicate our message to the legislature. They are under a tight timeline to complete a budget, we all need to do what we can to make sure that they don't balance it on our backs. For more information on this subject be sure to go to: http://saveyourcity.net/

Latest Sales Tax Data

Attached is a chart showing sales tax collections for the first quarter of 2009. The Cash Receipts Analysis report (CRA) is designed to give jurisdictions an analysis of sales and use tax cash receipts from the State Board of Equalization (SBE). The CRA includes comparisons by quarter, by fiscal year-to-date, and by benchmark year. The report not only includes the cash receipts for our city, but all jurisdictions in our county-wide area, other counties throughout our region, regions throughout the entire state, and Statewide totals.

While collections are still down overall from last year, you can see that Manteca is not doing as poorly as our neighboring jurisdictions. Part of this is due to the fact that we started losing sales tax dollars sooner than many of our neighboring cities. We had one of the largest year to year drops at this time last year. So our reductions are less this year since we took the hit earlier. In addition, we've now got full quarter totals from Costco and Bass Pro Shop included in this compliation.

However, we don't yet know how much these two entities contributed to our smaller revenue drop. We don't get detailed numbers until next month. If a lot of the increase is attributed to these two businesses, that is a double-edged sword since we have sales tax sharing agreements with each entity. With Bass Pro, they receive 55% of the proceeds, while Costco gets 45%.

Once we get business specific numbers, we'll be able to do a more accurate projection of our sales tax revenue for the upcoming fiscal year. So far, revenue is pretty close to what we expected, but we need more detail before making our final 2009-2010 sales tax revenue estimate.

MANCRA.XLS

Labor Issues in City of Sacramento, and a bit of State Budget News

At tonight's Sacramento City Council meeting, a huge utility rate increase is on the agenda. There is some Council opposition to this rate hike. Coincidentally, newshounds have revealed an internal memorandum noting that 430 utility workers may face layoffs. Click here for more information on the layoffs and click here to read more about the proposed utility hike.

In addition, City of Sacramento firefighters have now proposed to forgo raises until 2012 in exchange for an assurance from city negotiators that no firefighters will be laid off and staffing on fire engines will not be reduced in the next 30 months. 68 positions in the fire department are at risk if a labor agreement can't be reached. Read more about the situation here. Click here for the Bee's editorial today on the issue and click here to read one Bee columnists take on the situation.

There is some good news from Sacramento today--from the state government of all places. Senate President Pro Tem Darrell Steinberg has unveiled a counter to the Governor's budget proposal that eliminates the $2 billion loan from local government. It also proposes softer cuts to many social services and proposes less reserve funds to offset the reduction in cuts. While this is only the first of many counter proposals, it is nice to see that the majority party is not endorsing the short term loan from us locals. Read more here.

Good News, Bad News

While most of the economic news is still negative these days, I try and include a pocket of sunshine every once in a while. So, I'll do the good news first.

As the stock market has rebounded from its 50 percent drop to only a 30 percent drop since last summer, CalPERS has benefited as well. In a news release from Dow Jones (click here), CalPERS states that it gained 12.5% over the past quarter, putting the fund back at $180 billion. Now CalPERS is still tens of billions of dollars below its mid 2008 value, but it is at least a nice reversal of the current trend. Unfortunately, CalPERS is going to need a lot more double digit gains to stave off a huge rate increase next year.

Now for the bad news. The latest state budget proposal not only includes a loan of property tax revenues, but another "loan" of $750 million in gas tax funds from local government. That is 75 percent of all the gas tax funds received by local government--and about a $1.6 million hit for Manteca. These cuts would more than wipe out the gain in local funding from the federal stimulus package. As noted in the story you can access here, maintenance and repair of local roads would be virtually eliminated--which would exacerbate the already deteriorating condition of many of our roadways. Delaying repairs only makes things far more expensive in the future, as road overlays now are far less costly than the reconstruction of roads in the future.

Once again, the state has come up with the worst possible solution to their budget problem. They are once again proposing a short term fix that barely makes a dent in their budget gap. A fix that in the long run will cost ten times the short term budget savings. It is this type of short-sighted budgeting that got the state in this mess in the first place.

To learn more about the potential options that the state is looking at to divert gas tax funds, click on the link below.

Transportation_Overview_05_29_09.pdf

GM Bankruptcy hits home

Manteca's Sexton Chevrolet permanently closed its doors on Friday morning. Our thoughts and prayers go out to all the families impacted by the closing. We had all hoped that the dealership could make it through these tough times in the auto industry, but apparently the GM bankruptcy was the last straw.

For city government, every auto dealer closing is another hit to our budget. While we aren't allowed to disclose sales tax information from individual businesses, we can tell you that the closing will have a noticeable impact on our budget. Auto sales make up about 11 percent of our sales tax revenue, and sales tax revenue is about 25 percent of our General Fund revenue. Sexton was a big contributor to our local auto sales.

Public safety sales tax dollars are not impacted by the closure. While the base one percent local sales tax stays with the community where a car is sold, tax override measures such as our public safety sales tax and county transportation tax go back to Manteca no matter where a Manteca resident purchases their vehicle. Conversely, when a non-Manteca resident purchases a car in Manteca, they don't pay the public safety tax.

Click here to read more about the closure in today's Bulletin.

New Website to Save our Cities!

The League of California Cities has started a new website to publicize the state's proposed money grab of city funds. Check out the website
SaveYourCity.net

The State is trying to take money from cities and counties despite that fact that we amended the State Constitution in 2004 to stop them from doing this. As I've noted previously, the state has proposed to "borrow" about $1,000,000 from Manteca. Given that we've already had to reduce our budget by nearly $10 million, this would further devastate our ability to provide services to the community.

As of today, the site includes videos from over 300 local and state officials protesting the State's raid of our local funds.

By the way, the latest budget news out of Sacramento includes a suggestion from the Governor that the State Commission on tax reform consider a "flat tax" of 15%. To quote the story:

Advocates of a flat tax, which applies a single tax rate to all income, say it increases compliance with the tax codes because it is so simple and easy to understand. But opponents dislike that it taxes the wealthy at the same rates as the poor.

Steve Forbes and Jerry Brown both pushed for it during their presidential campaigns.

To read more, click here.

Crunch Time for Budget Adoptions

As I've noted before, June is typically the month most cities adopt budgets for the coming fiscal year. Typically, these are fairly proforma actions for most cities--but not this year. Not with nearly every city seeing 20 percent plus drops in revenue. Drops of this size mean that cuts have to go far beyond discretionary items--and that labor costs must be addressed. Most of us have revenue numbers that are so low that public safety labor costs are in excess of total general fund revenue. In other words, even if every non-safety position was eliminated, there still wouldn't be enough money to sustain police and fire staffing.

With these drastic drops in revenues, police and even fire are facing cuts that many agencies haven't experienced in the past 30 years, if not longer. Here's a quick trip around the state (and Nevada) to see what is happening this week...

Petaluma has cut their deficit from $4.5 million to $1.1 million but they need at least five percent out of each labor group to close the rest of their budget gap. Read about it here.

Menlo Park, which has some of the highest safety salaries in the State, have agreed to alter their contracts. Read about it here.

Reno officials have made it clear that even if the fire fighters make concessions, it won't guarantee their jobs. Click here for more.

Down south in Norco, the City and their fire fighters continue to battle over the impacts that a reduction in service would create. Here's the story.

In San Francisco, the city's largest labor union has blinked after the reality of 1776 layoffs were imminent. The SEIU made $16 million in labor concessions and were guaranteed no layoffs until November 15. The Mayor has agreed to put a tax measure on the ballot in November--and its passage is necessary to stave off further cuts. Read the Chronicle story here. For a less objective view of the situation, click here for the story written by the Tenderloin Housing Clinic, whose entire city contribution is slated for elimination in this year's budget.

Management Retreat Follow Up

Last week's Quarterly Management Meeting has set the tone for change and innovation at City Hall. A good chunk of the morning was spent discussing ways to run the City more efficiently. At the conclusion of the meeting, managers were all asked to participate in at least one working group. While management participation is mandatory, I expect many other city staff members to participate as well.

I call them working groups because the word "committee" is not action oriented. I expect these working groups to address issues, make improvements, and then move on to the next issue.

Working Groups were formed to:
-pursue changes to our fleet management operation
-evaluate our level of service in a number of areas
-set the criteria for managed competition
-make the city more energy efficient
-review position consolidations and cross training
-implement the sharing of interdepartmental resources
-coordinate the development review process
-find more areas for cost recovery
-centralize the purchasing process

I'm hoping that every meeting will generate changes in the way we do business. I expect that many of these changes will be implemented immediately. While some will take longer and may take Council action, I believe that the majority of the work we do will create immediate improvements. Given our budget situation, speed is critical as we must find ways to continue to provide a high level service with diminished resources.

As groups meet and implement changes, I'll try and document the progress in the blog. So please stay tuned.

Governor's Latest Budget Proposal

The good news is that the Governor has a plan to close the deficit. The bad news is that the State Controller tells us that this plan needs to be implemented by June 15. After that, the State has a cash crunch of herculean proportions.

As expected, the Governor's plan includes "borrowing" $1.982 billion from local government--which equates to about $1 million from us. It also attempts to divert $750 million in local road funds. The plan also severely impacts every aspect of state funding, including many that will threaten our quality of life here in Manteca. For example, the budget proposal includes a $4.5 billion cut for K-12 education. It also takes over a billion dollars from our community college system and a like amount from the 4-year colleges.

It guts the safety net for the tens of thousands of families living below the poverty line in this County. Programs such as Medi-Cal and Healthy Families are gutted and CalWorks and Child Welfare programs are severely reduced. The State Prison system will release thousands of prisoners and our severely overcrowded jail system will be expected to handle many more recidivists.

Click here to see the detailed listing of all the programs impacted.

While the impacts are devastating, it may lead toward the need to restructure and downsize our state government. As I've mentioned before, those of us at the local level believe there are a lot of areas where state government could just go away--and let the local citizenry run the show. Click here for an op-ed piece in last week's Sacramento Bee that talks about this in more detail.

Budgets in the News

As we approach budget adoption season, we're beginning to see the many different ways that California cities are dealing with this historic drop in tax revenues.

In Los Angeles, 1200 positions are being eliminated and non-safety employees will be taking 26 furlough days. The city is still hoping to cut another $150 million in costs through salary concessions. You can click here to read more.

In San Francisco, they've already eliminated hundreds of jobs and over 1000 more positions are proposed to be eliminated after the City's largest labor union rejected a proposal to reduce compensation for holidays. Read about it here.

Non-safety employees have made concessions in Gilroy, but there are still potential layoffs for fire and police if labor costs can't be reduced. Read more here.

The jobs for half of Norco's firefighters will be eliminated unless their union can come up with $750,000 in budget concessions according to a report you can access here.

At the Sacramento Metro Fire District (which covers part of Sacramento County) they are closing three fire stations. However, they have been able to avoid layoffs due to salary concessions. Click here to read more.

And then we have the State of California and its $24 billion deficit (I think it was $21 billion last week). Click here to review the State's May revise. You can read more about the details here.

On a more positive note, I thought I'd attach a link to Joel Kotkin's website. He is one of the pre-eminent urban/economic geographers in the country. He was way ahead of the curve in predicting the many economic problems now being faced by the Golden State. I'm hoping that his article you can read here is also ahead of the curve. He argues there is still hope for the future economy of our state.

Pension Tsunami

Pension Tsunami is the name of a very popular blog that is tracking public employee pension issues in California and across the nation. As the stock market has tumbled and goverment budgets tighten, government employee pensions are becoming the latest flashpoint for limited government activists.

In my nightly (and sometimes overnight) review of local and state government issues on the web, I'm finding more and more chatter about the high cost of defined benefit programs. This chatter will only increase as cash strapped municipalities are forced to increase pension contributions to meet the demands of CalPERS to guarantee future benefits.

Not surprisingly, conservative anti-tax/limited government groups in Orange County are leading the way. The Orange County Register seems to be serving as their mouthpiece. Wednesday's Register editorial page had a rather pointed opinion piece on the State's inability to address pension reform. This piece was a follow up to a story they did on the top 20 employee CalPERS pensions in the State and a feature on double dipping by the retired City Manager of Anaheim. You can read the editorial by clicking here, the top 20 list can be accessed here and the double dipping story here.

Last fall, Orange County approved a ballot measure that requires a public vote before their county government can increase employee pensions.

The Los Angeles Times also was busy discussing pension reform as well. Los Angeles City Council members earn $178,000 per year. One of their Council members is very concerned about the future liabilities of the city's private pension system. This Council member is very familiar with their pension system since this former Police Chief is the city's highest pensioner at $265,000 per year. You can read that article here.

Landscape Maintenance Districts - Who Maintains them?

In Monday's Manteca Bulletin, the Managing editor continues to disagree with the City's proposal to take over management of the City's Landscape Maintenance Districts.

The article points out that the city would preserve five jobs if it were to take over the district maintenance. It also points out that these workers cannot perform other duties if they are dedicated to the districts. This is all true. However, this argument is not relevant to why the city is proposing taking over districts.

The city is confident that the public will be better served by the city workers performing district maintenance. After a thorough evaluation in comparing City costs with contracted rates, staff felt that the City could provide residents with a better value for their dollar.

The cost comparison was focused on direct costs that a contractor would have control over, such as the cost to perform the maintenance, electricity and water. City staff’s estimates to perform the maintenance of the LMDs is within 5% of current contracted rates. The added benefit is the potential to save money from reduced water consumption. All LMD combined funds equal approximately $1 million. Approximately $300,000 is for water alone. With Parks maintenance staff already on site, we anticipate an approximate 15% reduction in water consumption. The City only assess (taxes) for the actual cost to maintain the improvements. Therefore, if there are savings from reducing water consumption, the savings would be passed on to the property owners of the respective LMD, in the form of a lower assessment.

In addition, as noted in the article, city workers are here every day and can respond much more quickly to repair problems that occur in the districts. Using city workers also reduces overall support staff costs for the city as well--and thus benefits all taxpayers. Finally, there are many intangible benefits to preserving the city workforce. In times of emergency, such as a flood or other natural disaster, it is city workers who perform civil defense functions. As we continue to reduce our city workforce, we have less staff to monitor levees, clean up after disasters and assist our citizens in their greatest time of need.

The City of Manteca cares about its employees, many of whom live and shop in Manteca. The City has also invested time and money to train its employees. It’s true that when the City assumes responsibility for the LMDs on July 1, it will have a negative impact on private-sector contractors. Currently, the majority of contracted work is with contractors located outside of Manteca.

Staff has determined that the City can provide the same level of service, or better, to the LMDs without any increase in cost and, over time, could actually result in a cost reduction. At the end of the day, we are responsible for providing the best value to our citizens for their tax dollars.

I can also assure you that we are putting in place a management system that will ensure that all functions performed by city workers are done at the most cost effective means possible. At the conclusion of the Council Study Session last week, the Parks and Recreation Director recommended that staff work with the Budget Advisory Committee to set up a system that ensures that all city services are done at a level competitive with their private sector counterparts.

We'll be using this blog in the future to talk in more detail about how we'll be using "managed competition" to ensure that we are delivering quality services at the lowest possible cost.

The link noted below is the power point presentation on this subject at last week's Council Study Session. The final slides talk a bit more about the factors that go into "managed competition".

Landscape%20Maintenance%20Districts%20powerpoint%2051409bullets.ppt

Thanks to Deputy Director Mark Hall for contributing to this post.

Budget News around the State

A quick read of the morning news continues to reinforce the fact that Manteca's budget problems are not unique. Revenue drops may vary a bit from City to City, but we are all grappling with same challenges--how to continue to fund our services with less revenue and ever increasing labor costs.

Here is a quick tour around the State...

Sacramento's firefighters still want their 5 percent raise, but they are willing to put their raises towards "layoff relief". Read about it here.

In San Bernardino, firefighters may head to the ballot box to preserve jobs. Click here for the full story.

Just over the hill in Oakland, 12 firefighter trainees were released because the department doesn't have the funding to hire them. More here.

Down the road in Modesto, it is more of the same. Revenues keep dropping and services citywide are going to take a major hit. To find out what cuts they are proposing, read it here.

To read a little bit more about our budget situation, click here to read the Bulletin's Sunday story on our budget.

Budget Study Session Wrap Up

It was nearly standing room only this afternoon in the City Council Chambers as staff held a Budget Study Session with the City Council. This session was a follow up to the January 8th City Council Workshop which focused on methods to address an $11 million deficit in the General Fund.

Since January, every City Department has been working diligently to determine the most effective way to reduce costs while minimizing service levels reductions to the community. In addition, staff held four meetings with a City Council-appointed Budget Advisory Committee (BAC). The BAC came up with a series of recommendations to address both the short- and long-term budget challenges. The BAC presented a summary of their recommendations to the City Council back in April.

Today's meeting was held to review the BAC recommendations in more detail and get an update on the Budget situation from City staff. Updates presented today include:

*Revenue projections for 2009-2010 continue to decline--it has dropped another $600,000 since January--down to $28.8 million.

*2008-2009 net cash flow looks to come in about $2.6 million better than budgeted due to the cost-cutting already implemented by every department. Since we'd originally assumed about $2.0 million in current year savings, this additional savings offsets the lower revenue expecations.

*Taking into account 2008-2009 savings, we have a $9.3 million budget gap to close for 2009-2010

Recommended measures to close that gap include:

*Implement development fees that require full cost recovery

*Shift Landscape Maintenance District Responsibilities to City Staff

*Implement Employee Furloughs (already done)

*Freeze Vacant Positions/Review opportunities to consolidate positions (done)

With these actions, we should be able to reduce the gap to less than $3 million. Staff will continue to review additional actions to close the remainder of the gap. Since 85% of general fund costs are personnel, additional reduction in personnel costs are going to have to account for the majority of the additional cost reductions. There are obviously two ways to achieve employee costs reductions--either reduce pay or reduce positions.

As a service organization, it is my goal to preserve positions. Every reduction in staffing reduces our ability to serve the public. I will continue to work closely with our staff to see what we can do to reduce costs without losing any staff positions.

I'll be talking more about specific issues discussed at this session in future blogs. To review the power point presented at the session, click below.

Budget%20Workshop%2005_13_09.pptx

More Thoughts on the State

All week, I've been telling my staff that I'm done talking about the State and their budget follies. Unfortunately, I just can't help myself and I keep reading more things that I want to share. The Ventura City Manager Blog posted a great essay yesterday on the upcoming election and some of the ideas floating around to reform state government.

He talked about a group called "Common Sense California".

Some years ago, a small group of thoughtful and idealistic activists from both parties (and independents) saw this trainwreck coming. They began meeting and tossing around ideas for heading it off. They adopted the name "Common Sense California." At first, they aimed to "reform" Sacramento. They had sensible ideas, like Redistricting reform to blunt the partisan stranglehold (an idea voters have adopted, but is still years from implementation.) Ultimately, however, they came to the conclusion that democracy needs to be reborn at the local level before we can fix Sacramento.

They preach a simple, sensible message: we are going to fix our monumental self-induced problems only by changing from a "take no prisoners" activism that punishes moderation to an inclusive dialogue that seeks win-win consensus. Common Sense California doesn't claim we can solve our budget, transportation, economic and environmental challenges with a three point panacea. Their mission is "to help solve California's public problems by promoting citizens' participation in governance. We work with city governments, school districts, regional governance associations, and non-profit organizations to both support and promote legitimate civic involvement."It is a long way from the digital OK Corral of virtual bloggers who never listen because they have all the answers. Which is why a revival of healthy civic involvement is so promising. Click here to learn more.

He concluded the blog with a quote that has become one of my favorites:

Winston Churchill said it best: "Americans will always do the right thing, after they've exhausted all the alternatives." Californians have zealously passed initiatives, recalled officials, ousted judges and ranted about the futility of it all. Now it is time to get serious and work together to put our State back on the right track.

You can read the full post here.

Budget Study Session Thursday

The City Council will be holding a study session on the budget this Thursday afternoon at 3:30pm in the Council Chambers.

Staff will be presenting an overview of the budget modifications made to date to address our $11.3 million budget deficit. Back in January at a Council work session, staff outlined the issues and challenges facing each department in addressing the budget deficit. In conjunction with a Council-appointed Budget Advisory Committee, staff has been making both immediate and long term adjustments to every department's spending plan.

To date, we've already reduced staffing levels in nearly every department. Staff has also received Council approval for cost-saving restructuring plans that impact Public Works, Community Development, Police and Public Works.

At this point, it is appropriate for staff to get confirmation from the City Council for addtional cost saving ideas. Some of the major issues to be discussed include the proposal to have staff take over the maintenance of landscape maintenance districts, the shifting of Development Services to a special revenue fund and postponing until September adoption of a final budget.

Updated Numbers from the State

From today's Capitol Notes Blog:
Late word this evening that will get everyone's attention: Governor Arnold Schwarzenegger has informed legislative leaders that if three of the six budget-related ballot measures fail next Tuesday, the state faces a $21.3 billion deficit between now and next July.
In a letter to the four legislators this afternoon, Schwarzenegger actually offered two new assessments from his budget team of what lies in store for California: a $15.4 billion shortfall if Propositions 1C, 1D, and 1E pass, and the aforementioned $21.3 billion if they fail.

Thus, the best case scenario now has a budget gap in excess of $15 billion! This includes the $8 billion deficit now predicted for next year, along with a $7.4 billion deficit for the balance of this year--up $5 billion from the $2 billion we discussed in Saturday's blog post. To read more about this painful news, click here.

State Revenue Continues to drop

From "Capitol Alert":

The latest on California politics and government
May 8, 2009
Controller: State's revenues $2.1 billion below estimates
California has received $2.1 billion less this year in tax revenues than projected in the February budget, according to State Controller John Chiang.
In April alone, the state's General Fund revenues were down $1.89 billion, 16 percent below what the February budget projected.

This is on top of the $8 billion hole projected in March. If the ballot measures fail, that would add another $5.8 billion, leaving the State a whopping $16 billion in the hole. This may not be the final number as the Legislative Analyst's Office hasn't updated their numbers since March.

The bottom line for those of us in local government is that we should just assume that the State is going to take another chunk of our revenues next year. The magnitude of the number is not known yet, but for Manteca it will certainly number in the millions of dollars. Hopefully, the number will be somewhat mollified by an acknowledgement from the State that they are going to have to start cutting at the bone, just as we are doing at the local level.

Someday, State government is going to cease to function and then they will be forced to make the fundamental changes necessary to survive in today's world. Until that time, we at the local level are going to have to continue to assume that our revenues are going to take a hit every year and we should plan accordingly.

Pinching Pennies can be Pound Foolish

Over the past two weeks, the Admin Services Director, the Finance Director and I have had great discussions with all of our labor groups. We are now attempting to have face to face meetings with employees in every department. Our goal is to make sure that all of us understand our current budget circumstances and what we are trying to do to make sure that we can sustain a high level of service to our community during these tough times.

One subject that comes up in every discussion is why we are still making capital expenditures in a time when many employee jobs are at risk. The expenditure most frequently questioned is the remodel of our Permit Center. Many believe that this $400,000 investment would be better used to preserve jobs. I can understand why people feel this way, but after learning the facts, you'll find that this is actually an expenditure that WILL preserve jobs in the long run.

Here are the facts:
*The original remodeling proposal was for $1.5 million and it was substantially reduced in light of the current budget situation.

*By creating a one-stop shop for permits, it will reduce operating costs by about $300,000 per year.

*The funds used for the permit center are facility fees that can ONLY be used for capital expenditures and not for staffing.

*We are currently requesting millions in fee increases from the building industry. These increases will be hard to justify if we aren't able to improve our customer service.

There are number of other qualitative benefits as well that were outlined in a Bulletin story earlier this week. To view the story click here.

When you add up the numbers, the one-stop shop will likely return $10 to the City for every dollar that was spent. In these budget times, we need more opportunities like that!

I can assure you that every expenditure is closely scrutinized these days. If something actually makes it onto the agenda it is because it is an expenditure that benefits the city or is something we are legally required to do. I encourage staff members to contact their Department Head or contact me if they are wondering why we are making certain expenditures.

Breaking News: The State strikes again

In an earlier post, I mentioned that there are still a lot of unknowns when it comes to our local budget. Due to these many unknowns, we will likely wait until September to adopt a final budget for this year. One of the key unknowns is what the State of California plans to do to local budgets if the ballot measures fail on May 19.

In today's Capitol Blog, John Myers has reported that the State Department of Finance in its updated "May revision" to the budget is threatening to go after a sizeable chunk of local property tax revenues to help balance the budget.

Here is an excerpt from the post:

The 'Plan B' scenarios if the special election measures are defeated continue to trickle out of the administration of Governor Arnold Schwarzenegger. This afternoon, a new one: the governor is prepared to propose a $2 billion suspension of the 2004 constitutional initiative protecting city and county revenues.
Talk of suspending 2004's Proposition 1A comes on the heels of a meeting yesterday where Schwarzenegger aides told the firefighting community that voters rejecting the measures on the ballot in two weeks time would result in as many as 1,700 firefighting positions.One local government official on this afternoon's call said the plan would be to borrow as much from local governments as Prop 1A allows -- 8% of property tax revenues in the 2008-09 fiscal year, estimated at $2 billion. An aide to the governor confirms the proposal was discussed.
That borrowing would not be easy... or cheap.
The five-year-old constitutional amendment, championed by Schwarzenegger, requires that the money be repaid with interest within three years. It also would require a supermajority vote of the Legislature.
Word of such a plan comes almost five years to the day that Schwarzenegger struck a deal with cities and counties for help back then, in exchange for Prop 1A.
"We have to get our act together as a state," said the governor on May 12, 2004, "rather than always looking to the counties and to the cities and take money away from them."
The suspension of 2004's Prop 1A has apparently been in the works for a while. Earlier this afternoon, I asked the budget campaign team for documentation supporting their new TV ad's assertion that "24,000 firefighters and police" could get laid off if the measures fail.
The document that I received referenced the Prop 1A suspension, and was sent to me before word of the proposal was confirmed by both those on today's call and the Schwarzenegger administration.
All of this is leading to a fairly intense debate as to whether the governor and his team are fairly, or unfairly, predicting dire consequences should the ballot measures fail.

To read the entire post, click here.

For Manteca, the hit would likely be in the neighborhood of $1 to $1.5 million.

In the News

As cities began to hold budget hearings and adopt budgets, we'll start seeing an avalanche of news stories about the trade off between salary reductions and layoffs.

Click here for the latest from Roseville, one of the wealthiest local governments in the state. Their revenue base is highly dependent on auto sales and retail sales--the two revenue sources which have dropped the most over the past year.

We've been tracking Santa Rosa closely for months. The story you can access here reports good news. Major layoffs have been avoided as both the Police and Fire Departments have made major salary concessions to save jobs.

Things aren't going as well in San Bernardino as a minority of the City Council is attempting to restore vacant firefighter positions that were frozen to save jobs. You can read about it here.

Here in Manteca, the Bulletin wrote a very positive story this past weekend (click here) about our attempts to meet our budget goals without impacting jobs and service levels. We've still got a lot of work to do, but I'm confident that our bargaining groups will do everything they can to work with us to preserve the high level of service expected by our community.

The Next Budget Raid from the State

I realize that the majority of the posts lately have focused on budgetary issues. Unfortunately, it is the budget time of year, and this will certainly be the most challenging budget we have faced (along with every other city in State) in the past 30 years. While we've been doing everything we can to reduce expenditures and maximize revenues, there are two major revenue issues that we can't predict yet.

One of those is our property tax collections, the County Assessor will not be coming up with final calculations until July or August. Since property taxes are traditionally a fairy predictable source of revenue, this is typically not a problem. However, as I noted in an earlier post, this year's assessments could be down from 10 to 20 percent, depending on how the assessor weighs foreclosures into his value estimation. Since property taxes are 25 percent of our General Fund Revenue and 100 percent of our Redevelopment revenue, the assessor's final determination could create huge swings in our final revenue estimates.

The second major unknown is the State of California. The State budget is predicated on Ballot Measures 1A-1F winning at the polls on May 19. Right now, all of the ballot measures are in trouble. Even if the ballot measures pass, the State has now revised their revenue estimates and it looks like their original budget is now at least $8 billion in the hole. Win or lose, the State may come back and attempt to withhold or "borrow" some of our revenues again. I'm going to be recommending to the City Council that we adopt a "preliminary" instead of final budget in June. Once our property tax number is set and once the State finalizes their budget, we'll then have enough information to adopt a final budget. During the interim period, we'll continue to do what we are doing today, constantly looking for ways to reduce expenditures both in the short and long term.

I've attached a column from California City News here which talks more about the State's latest budget issues.

As the Economy Turns

I've noted a number of times in public meetings that our budget projections are a moving target. Every day, new information impacts (some positive, some negative) our bottom line budget for 2009-2010. While most of our projections are based on the hard data that we receive from our staff and other government agencies, we also closely monitor the State and National economic news as well.

National economic news is especially important when it comes to our pension costs. We fully expect our required pension contribution to Calpers to be increased significantly next year. This is due to the woeful state of the stock market. While there are some folks now bullish about the recent performance of the market, those of us who have closely followed the market the past few decades are not quick to assume that it is headed in a positive direction.

An interesting piece was written in the Huffington Post today about the potential short term stock market bubble and why it may be happening. It is good reading about the psychology of the market and the economy and you can read it here.

While the Huffington Post article is concerned with us chasing the next bubble in the economy, a new study by the Pew Research Center demonstrates significant changes in household spending patterns over the past couple of years. It further reinforces what we've been seeing in our sales tax numbers--that households are cutting back on expenditures--particularly non-essential retail purchases. You can read the study by clicking here.

It is these types of studies that convince us that sales tax, our most important city government revenue source, is going to continue to struggle. Sales tax revenues are not only an important component of the General Fund. Sales taxes also fund much of our transportation funding and pay for a good chunk of police and fire services as well.

Budget Deadlines Approaching

Colleagues are emailing me news articles from all across the State and Country about the latest City, County or State that is attempting to solve their budget crisis. Riverside County is the latest to join the news blitz, with their announcement that they'll be laying off more than 1000 employees if they can't get their employees to reduce their total compensation. You can read more about it here, and the labor union reaction here.

Riverside County's story is no different than the rest of us, with decreasing revenues and ever increasing costs for salaries, medical benefits and pensions. To quote one member of the Board of Supervisors:
"...In a county with an almost 13 percent jobless rate, "we have to realize how relatively (well off) we are," Buster said. He said the county needs the unions' cooperation in balancing its budget: "We don't want to do that by laying people off..."

Labor's reaction, not surprisingly is as follows:
...In tough economic times, "pensions are attractive targets for budget cutting, but it should be the last priority," said Jim Cunningham, executive director of the Riverside Sheriff's Association, which represents most of the county's deputies, district attorney's investigators, coroner's investigators and probation officers ---- more than 3,300 in all.

The members would be "vehemently opposed to any attack on the (current) pension plan," he said, suggesting supervisors instead tap into the reserve fund, which now stands at about $98 million. That account already is expected to be drawn down $30 million in the coming fiscal year, according to the county's mid-year budget report, which was released Feb. 3.

Supervisors also have talked about across-the-board pay cuts of 5 percent or more, but Cunningham says that assumes all county departments are equally important. They're not, he says, citing the planning department as an example of a department that has a "far lower" priority than policing. In a rough economy, he notes, crime typically rises and the current sheriff, Stanley Sniff, "runs a lean ship already..."

Manteca's situation is not much different. We are working very hard to minimize the budget's impact on both services and our employees, but at the end of the day, our final budget will be very dependent on our employee's willingness to acknowledge that we are now in very different times. Salaries, benefits and pensions all need to be analyzed in light of current and future revenue constraints.

In the News...

Deputy Public Works Director Jim Stone passed on an op-ed piece in the New York Times very pertinent to our business. It does a good job of describing the need to consolidate services as revenues slide:

http://www.nytimes.com/2009/04/20/opinion/20brokaw.html?_r=1&emc=eta1

On the budget front, the latest city struggling with labor costs is Los Angeles. The first article discussses the Mayor's proposal to cut salaries across the board by ten percent:

http://www.latimes.com/news/local/la-me-labudget20-2009apr20,0,1004865.story

The second article discusses the issues Los Angeles is facing with Fire department overtime:

http://www.firefightingnews.com/articleBasicSearchResult.cfm?articleID=64937&search=los%20angeles

On the pension front, the City of Pacific Grove is seriously considering bankruptcy as an option in dealing with its debt to Calpers:

http://globaleconomicanalysis.blogspot.com/2009/04/pacific-grove-california-explores.html

Before Vallejo, there was San Diego

As a City Manager, it is critical to stay ahead of the current trends. In the current economic downturn, every assumption about costs, revenue and budgeting and getting thrown out the window. Therefore, I am closely monitoring the cities which are at the leading edge of economic disaster. This is not only to make sure that we don't make the same mistakes, but to also look at the strategies these cities are employing to return from the brink. The two cities closest to the brink right now are Vallejo and San Diego.

While San Diego has somewhat recovered from its pension fiasco (unlike most cities which belong to CalPers, San Diego was self-funded), it is now facing huge challenges regarding its retiree health care costs and an operating budget that was damaged by the pension issues and is now facing huge drops revenue due to not only the overall economy but the drop in leisure travel.

Here are a couple of current cautionary tales emanating from San Diego:

http://www.voiceofsandiego.org/articles/2009/04/13/government/295retiree041209.txt

http://www.cbs8.com/Global/story.asp?S=10176087