Santa Paula: Elusive Fiscal Sustainability

 By Sheryl Hamlin

The two major items on the Santa Paula City Council agenda for May 25, 2017 Special Meeting were intertwined fiscally. Hence there was discussion about which item should be presented first: the FY 2017-2018 Budget or the Annexation into the Ventura County Fire Protection District (VCFPD). The budget was presented first followed by fire. Highlights of the meeting follow.

Reporting

There were no reports available to the public or the council prior to the meeting. Although the Finance Director showed the same Excel format used in a previous year working with Mike Sedell and an initial budget had been presented previously at the May 1st meeting, it is not clear why the most recent material was not available electronically several days before the meeting. The Fire report was also distributed in paper and not available with the agenda on the website prior to the meeting making review and commentary difficult.

Vice Mayor Gherardi noted that the council should receive monthly reports of expenses and revenues in the future. The mayor also expressed frustration with the lack of reporting prior to the meeting.

Since the May 1st meeting where the Finance Director reported a deficit of around $1.7 million, the departments had been asked to submit cuts. The May 25th presentation represented a revised budget with these cuts. After discussion, the deficit was reduced to $557,167.

No Enterprise Funds

The budget presented included no Enterprise Funds. The only reference to the Enterprise Funds were transfers from the Enterprise Funds to the General Fund. Because these transfers were in whole numbers, it was obvious that these were an estimate rather than actual expenses incurred by the enterprises (sewer and water). Vice Mayor asked for those transfers to be stated specifically. For a discussion of enterprise transfers, read this report.

It was clear at previous council meetings that the city must hire an employee who manages the waste water contract. This position was a major deficiency in the due diligence of the sewer plant acquisition. Because the city had a full service contract originally where everything was provided, the acquisition team completely overlooked the function. How might such a position overlap with the General Fund?

Precarious General Fund Balance

The General Fund balance is down to $600,000, according to Mike Sedell, the former Simi Valley City Manager who is working with the city on this budget on a pro bono basis. This amounts to two weeks of funding.

Precarious Police Staffing

According to Chief McLean, out of 31 officers, seven are out for various reasons, which leaves only sixteen (16) officers on the streets after eliminating management. Crime is up 30%, property crime is up 24% and serious felonies are up 24%. At one point, the city had to call in the county sheriff for help. There are only four dispatchers for 25,000 calls. The SPPD is in reactive mode, according to the Chief.

The Grand Jury has cited Santa Paula with violations relating to the police building. The police are obtaining estimates for repairs or rebuilding. The funds are not available. A mortgage of some type was considered for this multi-million dollar project.

Development Revenue for FY 17-18

The only development revenue budgeted includes 17 homes of the 34 approved for the Hardison property and zero dollars from Limoneira in East Area I. There is no date for East Area II.

Measure T Funds

The Council has not yet formalized communication between the Measure T Commission and the council. Will the Measure T monies be used to fill gaps in the budget or to reflect the priorities given in the ballot statement? Attorney Cotti reminded that Measure T was a general tax and monies could be used anywhere in the General Fund.

Kristin Madja, Chair of the Measure T Commission, gave a detailed statement. Regarding the issue of the use of the Measure T monies she said:

I have looked over the 2017/18 proposed budget presented at the May 1 City Council meeting. Due to the fact that there was initially a projected $1.7 million dollar shortfall in funding for 2017/18, I suspect the initial temptation for you would be to fill that shortfall with the $2.1 million in revenue projected to come as a result of Measure T. However, I urge you to resit this temptation. There are clearly reasons why such a large shortfall exists this year when we had a $200,000 surplus just two years ago. I urge you to work to balance the budget without preconceived notions of how the Measure T money will be spent at this time. The Chief is right. Measure T should augment spending for City programs and services, not supplement it. If you prematurely assign Measure T money to pay for programs and services that our citizens are already getting due to budget deficits without giving the community a chance to weigh in, then how will you ultimately justify this tax increase?

The Mysterious 80%

Mike Sedell opened the fire discussion saying that indeed 80% of the property tax for the county fire is not unrealistic. In year FY 14-15, he said it would have been 77% and in FY 17-18 it could be between 70.5% and 115% depending on the amount of funding the city could provide for the fire department. Note that the fire group provided three scenarios for funding: current, 90% of current norms and complete.

It is important to understand how the county distributes the property tax. All of the Santa Paula property tax (about $19 million) is distributed to various constituencies. As shown in the first pie chart, Santa Paula has the highest allocation of around .2088 or 20.88%. The second pie chart, shows the 16.5% or .165 negotiated allocation to the VCFPD, leaving about 4.3% or .0438 allocation to the City of Santa Paula. The ratio of .165/.2088 is about .795 or 80%. By multiplying each constituent’s allocation by the total assessed value, the resulting share of the property tax pie can be calculated. The total of all allocations must equal 1.0.

Santa Paula Tax Allocations without VCFPD Annexation

 

Santa Paula Tax Allocations with VCFPD Annexation

 

To read the details of the county’s allocations, click here.

Fire Projections

As stated previously, the fire group presented three scenarios. The only scenario practicably applicable is the current funding scenario or scenario one. In this scenario, the fire group shows FY 17/18 and FY 18/19 with savings to the city, while FY 19/20 through FY 31/31 are at loss to the city even with tax increment bumps from East Area 1 and the former Redevelopment Agency tax area.

There are savings in scenarios two and three, but neither of these scenarios reflect funding the city might be able to provide.

Assumptions

The fire group presented 17 assumptions on which their detailed financial model is based. Generally these assumptions are correct with a few exceptions:

Assumption #7 assumes the city will equip the East Area I fire station in fiscal years 18-19, 19-20 and 20-21. With zero revenue from Limoneira in FY 17-18 and zero date for East Area II, any forecast for this project is wishful thinking. Having first announced this project in 1998 (Latimes) and now twenty years later there are no development partners announced for the homes, this feels more like waiting for Godot.

Redevelopment Bump With No New Service Requirement

Assumption #15 is correct in that the City of Santa Paula will receive the tax increment (now worth $2 million) which was pulled from the city’s tax base and transferred to the Santa Paula Redevelopment Agency in 1991.

However, this transfer was merely an accounting entry. When the RDA is finally retired in 2025, the tax increment will return to Santa Paula, but there will be NO NEW SERVICE ADDED for county fire because these properties were/are within the Santa Paula boundaries. This is not an annexation. Why should Santa Paula increase its payment to the VCFPD for this tax increment?

This is one of the arguments for a lower allocation factor than .165. There are potentially several allocation increases in the near future. Why shouldn’t Santa Paula pay .145 or .125 given the potential increases in property taxes in the future?

The Elephant in the Room: Pensions and Health Benefits

Sandra Easley stated at the May 1, 2017 meeting that the FY 2017/2018 included $718,855 in increases from liability insurance, workers’ compensation insurance, and retirement benefits over which the city has NO control unless of course only contractors are used..

This is the issue of the century. With employee costs growing faster than government revenues, governments must cut services to pay the pensions and benefits. Simi Valley, Mike Sedell’s former city, just announced a record. They will pay 15% of the General Fund for employee pensions and benefits. Read article here.

Additionally there was a clarification about the pension costs for the transferred fire employees. Originally, it was represented that upon transfer to the VCFPD, all CalPERS costs would transfer to the VCFPD. This is incorrect, as recently learned. Upon retirement of a transferred employee of Santa Paula, the VCFPD will pay a prorata share of the employee’s CalPERS. For example, if the employee were 15 years with VCFPD and 5 years with Santa Paula, then Santa Paula would pay 5/20 or 25% of the employee’s lifetime pensions, while VCFPD will pay 75%. This is challenging to factor into the model, but is required.

Not a Clear Cut Decision

If this decision were merely a matter of a fixed percentage of the property tax going to VCFPD, the decision would be much more simple, but due to ancillary costs such as pensions, health benefits, lost revenue from the Fire Department and equipment and building additions, the modeling of this transfer is extremely complex. The recent data is a step up and should continue.

Next Analysis

The council requested a new budget for FY 17-18 with and without the Fire Department. The date for this meeting is projected to be June 19, 2017.

To watch the video, click here.

 

For more information about the author visit Sheryl Hamlin dot com


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