Santa Paula City Council meets to get fiscal house in order

By Sheryl Hamlin 

Diverse agenda items including mattresses, translators, development, explosions and budgeting filled the City Council chambers of Santa Paula for more than three hours on December 15, 2014.

Al Guilin, Deacon of San Sebastian Church in Santa Paula, gave a particularly contemporary invocation saying “we pray for more prosperous times” while giving hope to the new council.

Nicole Dryden, a resident of Santa Paula, spoke in public comments about an abandoned mattress on her street which neither Public Works nor Crown Disposal would remove, so the Chief of Police responded and removed it himself after seeing the post on Facebook.

Two members of the failed Public Safety tax increase on the November ballot spoke and reminded the council that over 60% of the city voted affirmatively for Measure F. Their coalition of concerned members is still active and wants to work with the city to create a plan of achievable goals for which they can find funds.

Council Member Gherardi spoke about accidents on Peck Road and the need for an additional traffic safety device. She also asked for an update on the buyout of Crown Disposal by Recology. The city attorney announced that the buyout would be on the January 5, 2015 agenda.

The proposal to hire a law firm who specializes in labor negotiations for approximately $30,000 to negotiate 2015/2016 salaries gave an indication of the dynamics of the new council. Union members spoke against the expenditure saying that the city had negotiated using its own personnel previously and there was no reason to change this approach. Council Member Gherardi said a hire of a contractor should involve an RFP and an interview process. Council Member Tobias indicated that it was a good idea to try something new, particularly because it was “revenue neutral”. Council Member Crosswhite asked if city staff would still be involved if the independent labor negotiator were hired. City Manager Fontes replied affirmatively, in which case, Vice Mayor Hernandez responded by questioning how the use of an independent labor negotiator could be revenue neutral if staff were still involved. The measured failed 4-1 with Council Member Tobias the lone ‘yes’ vote. Budgeting starts in January 2015.

Planning Director Minsk reported on the decade old Limoneira project East Area I which was agendized for this meeting. Limoneira, the applicant, requested the item be pulled saying that new council members need to be brought up to speed. According to Minsk, the continuance request was for an ‘unknown date’. Mayor Procter recused himself during this discussion citing conflicts without stating the specific reason.

A detailed status of the explosion and fire at the Santa Clara Waste Water (SCWW) facility was presented by Fire Chief Ariaza and Norm Plott from Ventura County Fire. The presentation included slides and videos, description of chemicals and reactions, evacuations and a detailed timeline. The first call came in at 3:14 am. It was not stated if the SCWW Conditional Use Permit (CUP) allowed deliveries at this hour. The county has suspended the CUP until such time when the Environmental Protection Agency (EPA) certifies the site and the City of Oxnard, which had previously reported radioactive material, certifies the material they receive from SCWW. Council Member Gherardi asked about random sampling. In the future, a higher level of testing will be required. Council Member Crosswhite asked about the impact on the farms. Agricultural Commissioner Henry Gonzales said that samples indicated inconsequential or trace amounts of contaminants. The FDA approved but the food sat in crates and became overripe for distribution resulting in millions of dollars in losses for the farmers. A question was asked about the inmates. The jail is a self-contained building with no windows and a special circulation system, so the officers weighed the decision of moving the inmates through the chemicals and confusion or leaving them in a clean environment. The latter choice was made. There are still several first responders undergoing medical treatment. According to Mayor Procter, a federal investigation is on-going and he reminded the audience that the business is not in Santa Paula proper.

The council’s financial consultant Thomas Gardner, DPA, led a Study Session on the 2014-2015 budget. Gardner’s slides provided a framework for the talk, but what was not in the slides provided the essence of the report. He opened with the idea that a guiding principle of budgeting is “where we’ve been and where we’re headed”. Having worked with Santa Paula since 2007, he has insight into previous budgets. He talked about “strong client and strong claims”, which is a pedantic way of saying “the squeaky wheel gets the oil” in the budgeting process and said that budgeting is a political process and not an accounting process for a municipality.

He provided the following chart showing Citywide 2014-2015 Expenses by Fund Type, noting that the greatest expenses were for water and sewer which were public health benefits and were paid for by user fees.

expenses_by_fund

 

 

 

 

 

 

 

 

 

 

 

 

He then broke down the General Fund showing that Fire and Police receive the largest share of the budget which is typical and not out of line with other municipalities. What he did not show was the performance year-to-date of any fund or budget category, so it was impossible to understand how the city is doing six months into the fiscal year.

general_fund_summary

 

 

 

 

 

 

 

 

 

 

 

 

 

The revenue discussion revolved around the following chart. He noted that although taxes are the largest source of revenue, the breakdown is problematic. Property taxes are about $7.0 million and sales taxes are $1.8 million, thus making the city heavily dependent on the housing market. He reminded the council that “building permits are not ongoing revenue”.

general_fund_revenue

 

 

 

 

 

 

 

 

 

 

 

He next showed a slide indicating that it took the city five years to respond to the recession in reducing staff. The staff reductions were slow and salaries were paid out of the General Fund. From a peak in 2008, the city finally adjusted down to 97 positions in 2012 reflecting that actual state of revenue. Note slight increases in 2013 and 2014. He also said that payments to PERS and health care were eating up expenses, so there was no money for infrastructure or other projects. He discussed the need for more detailed planning with respect to the budget as new employees are added.

Year 2007 2008 2009 2010 2011 2012 2013 2014
Employee count 176 179 173 156 140 97 102 107

 

He said that cities did not see the sales tax drop fast enough during the Great Recession, so many, like Santa Paula were slow to adjust.

As an aside, the Legislative Analyst Office (LAO) of the State of California has just produced an important set of financial information. Here are a few facts about California from the LAO report:

  • Californians spend a large percent of income on housing and wages have not kept up with house price appreciation
  • California lost 1.3 million net jobs between July 2007 and early 2010. These job losses were much bigger than those of recent recessions. Also, the time it took California to recover the lost jobs—nearly sevenyears—was much longer.
  • California’s population and labor force have grown since the Great Recession began. Therefore, even with the job recovery described above, the state’s unemployment rate as of August 2014(7.4 percent) remained above pre–recession levels. In late 2006, before the recession, California’s unemployment rate fell as low as 4.8 percent.
  • California’s elderly population is growing and by 2050 the 65-74 aged population will grow the most registering almost 70% increase with the 74 and up aged population growing the next most with a 35% growth. This has huge implications on sales tax revenue and the housing market because elderly people spend less and consume differently than working aged people.

The most important chart in the LAO Report is the changing source of state revenue and the diminishing sales tax revenue. Note how the state depends on personal income tax and not sales tax. The decrease in sales tax represents an increase in spending on services which are not taxed. This is the result of an aging population who spends primarily on untaxed health care or other services rather than taxable goods. As it relates to municipal governments, such as Santa Paula, a city looking to attract more sales tax, the downward trend in state sales tax revenue indicates that cities will compete for any new sales tax revenue opportunities.

ca_revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr. Gardner also said that cities in general have too much municipal debt such as post-retirement benefits and encouraged Santa Paula to detail such items in subsequent budgets. He stressed that the council must understand its “fiscal drivers”, ie, what are the city’s sources of revenue. In the case of Santa Paula, the primary sources, as stated earlier, were property tax and sales tax with a disproportionate reliance on property tax. He noted that a $400,000 home only yielded $400 in taxes to the city after the state, county and school districts take their portions of the property taxes.

Although not discussed, it is useful to think how the $400 property tax revenue relates to the East Area I project. With 1500 homes planned, the potential annual property tax revenue could be only $600,000 in revenue, after all are built out and assuming they sell around $400,000, which of course is unknown at this time. According the real estate site redfin dot com, the 93060 zip code which includes the incorporated areas of Santa Paula and some around it, have averaged only 28 home sales in the past 90 days. This running average was as high as 50 homes a year ago. So assuming 50 home sales annually, the East Area I would be fully sold in 30 years.

Dr. Gardner noted that this greatest benefit of EA I development would occur 2017-2018, presumably this would be due to developer fees, although he did not elaborate. However, this statement appears to contradict the City Manager’s report for the 2014-2015 budget where it was stated: A critical period from 2017-18 through 2019- 2020 will exist when new revenues from the East Area will most likely not provide the city with sufficient resources to fund expanded park and fire facilities benefiting citywide residents. Based upon current city practices the shortfall during this period could be as much as $2,000,000. See previous report for details.

Dr. Gardner said the city must budget for on-going expenses such as salaries, PERS increases, JPIA insurance increases, services for East Area, restoration of lost positions and differed equipment and capital investments.

One revenue strategy, which was mentioned by Council Member Gherardi during the recent election, might be federal or local grants as budget supplements. Others, Gardner said, could be increasing fees, transfer services to private contractors, sell or lease assets, increase taxes and promote development. The budget process starts in January 2015.

Simultaneous translation of public meetings was the next item on the agenda. An estimate of $16,000 was presented. An RFP is needed which would include a scope according to Vice Mayor Hernandez. Council Member Gherardi reported that she had noted how the school district provides such services through the use of iPads and volunteers. She suggested Santa Paula use this approach for several meetings until such time when a proper RFP is developed. The City Manager said a service provider should have a planning vocabulary. The council voted to use a temporary solution until a proper requirements statement is developed and costed.

Finally, upcoming topics and sessions were suggested as follows:

  • Goal setting workshop (Gherardi)
  • Mid-year budget update
  • Recolage Update
  • Council appointments
  • Affect of the passage of Proposition 47 on the city police (Tobias)
  • Joint study with school board (Gherardi)
  • New accounting software status (Hernandez)
  • Lessees who lease city property (Hernandez)
  • RDA Oversight board (Hernandez)
  • Cost Recovery Policy (Hernandez)
  • Post Redevelopment Strategies such as the one by Larry Kosmont (Procter)

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Sheryl Hamlin: With an MS in Industrial Engineering, Sheryl Hamlin spent years in technology with stints at Motorola, Tandem Computers and various startups. She has been on the boards of neighborhood organizations both in San Francisco and Palm Springs where planning issues were her specialty. She now resides in Santa Paula and loves the historic fabric of the city.  Ms. Hamlin’s blog Stealth Fashion  and  technology product ‘ Plug and Play Webmaster‘ .

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