Special Oxnard City Council emergency meeting Monday to discuss budget crisis

By George Miller

BudgetCrisis

OXNARD

Up until now, we had not seen  projected figures nor have there been any public planning meetings for the budget due at the end of June. We have already been warned of deficits, first $2-3 million, more recently up to $9-10 million and now $11.6 million. The budget projection just received (attached) says that and proposes borrowing $16 million from the special Measure O fund for public safety and the separate enterprise water fund- the very things we were warned were imprudent not so long ago.  This would eliminate most reserves, possibly triggering loan covenants and further damaging Oxnard’s credit rating. The plan also recommends $11 million in cuts for the coming year and similar further belt-tightening going forward, but details are not specified.

A special Monday Council meeting was called to discuss this, with the topic listed as follows:

SUBJECT:   Oxnard Financial Forecast and Impact of Major Assessment Findings  (001)
RECOMMENDATION: Receive and consider the presentation and verbal report on the City’s financial forecast by David Millican, Special Advisor with Management Partners, Inc.

Name Date Agenda Video
City Council Meeting – Special Meeting May 4, 2015 – 6:00 PM
(5:00 PM Closed Session)
View Agenda

Here is the meeting agenda report- Oxnard Financial Forecast and Impact of Major Assessment Findings: Financial Forecast (pdf 7.78 MB) (download, read/print)

It is our understanding that this meeting will focus on the general fund, not the much larger enterprise funds for water, wastewater, etc., although they are linked somewhat, due to fund transfers, etc.

 There is also a prior closed session, as follows

1. CONFERENCE WITH LEGAL COUNSEL – POTENTIAL LITIGATION.CC On the advice of the Interim City Attorney, pursuant to Government Code section 54956.9 (d)(2), based on existing facts and circumstances, there is significant exposure to litigation against the City in six potential cases. The City Manager and the Interim City Attorney requested that this item be discussed in closed session under the Brown Act exception of Conference with Legal Counsel – Anticipated Litigation.

More potential liability. Oxnard has spent a fortune in litigation, awards and settlement payouts- and more is likely on the way.

 

 Some key points

Oxnard residents have among the lowest per capita incomes in the county. In contrast, Santa Barbara has only half the population, but roughly the same sized budget and a far higher per capita income and tax base to pay for it.  But Oxnard residents still need police and firefighting  services even more per capita than Santa Barbara and need roads, water, wastewater and trash pickup in almost the same proportion.

The big picture looks bad- $13.6 million deficit for FY 2014-15, $90 million over 10 years, without major expense cuts or revenue enhancements….

OXFinFcst-4

Source: Oxnard Financial Forecast and Impact of Major Assessment Findings

 

 

Property taxes expected to increase over 40% by 2024 (40% of general fund now).

Sales taxes expected to increase by about 23% by 2024 to about $37 million (This may not include Measure O 1/2% tax).

General fund is predicted to grow 34%, from $107.6 to 142.8 by 2024.

Some alarming things

Over and above the massive actual deficits are the matters of accumulated deferred maintenance and new capital requirements for infrastructure, along with pension and other massive unfunded liabilities.

21% of city positions -263 of 1268- are vacant. Presumably, most of these are deemed needed. The vast majority are unfunded. What are we missing by NOT filling them? How much bigger would the deficit be if they WERE filled?

Pension costs are rising, unfunded pension liabilities are very large. PERS Safety Plan costs to increase by 33% to $23 million by 2020. Non-Sworn employee pension costs to increase by 74% by 2024. Total pension costs to increase by 47%. PERS will drop later.

The city recently increased many salary ranges and is planning on generous compensation increases, without ever doing a comprehensive salary survey and without ever specifying how all this would be paid for.

At least $3 million in accrued leave liabilities were accumulated, largely hidden and unaddressed, until recently.

A $24 million dollar Fire Station #8 was built, adding millions in annual operating costs, said to be excessive and even unneeded, by some.

Outside consultant costs may run $1+ million, to help sort out the financial and Human Resource problems. It is unknown how soon regular employees can assume full control and allow consultants to leave.

Forward inflation rate estimate is only 2% (it might be worse).

The golf course, Performing Arts Center, deficits are large and ongoing.

A large liability was added for the downtown movie theater complex.

There is also the matter of city liabilities of approximately $16 million for the redevelopment agency dissolution.

Not long ago, the city approved a $24 million bond issue to help pay for deferred street maintenance, but that is not nearly adequate.

Half of the assessment districts are showing a deficit, according to a City Manager statement at a Council meeting.

Questions to be addressed:

– Why were these awful truths not surfaced in their totality and dealt with years ago? Why did staff, city council and auditors NOT blow the whistle?

– What can be done to stabilize the ship of state (city)?

 This is how the forecast looks after recommended changes are made, including the loan and major budget cuts of $10-13.5 million annually and revenue enhancements:

OXFinFcst-14

Source: Oxnard Financial Forecast and Impact of Major Assessment Findings

 

OXFinFcst-15

Source: Oxnard Financial Forecast and Impact of Major Assessment Findings

 

Mayor Flynn

The Mayor said on Sunday that council members had a pretty good idea that they “weren’t getting the full story from previous City Managers…. The staff had a culture of not wanting to give bad news to the Council …. that they had to rope-a-dope it.”  Flynn says that they have more confidence in Mr. Nyhoff. “They (previously) had a Vegas mentality… roll the dice …. that one way or another we can fix it.” He believe that there was no accountability and that he sees that improving.

He said “I voted against 5 of 8 past budgets,” …. but felt that I had to vote for budgets while Mayor, because I couldn’t vote against my own budget.” I pointed out that he had just told me that “in ten years on the council, it was exclusively a staff budget,” so why did he think they were his budgets and that was he obligated to vote for them?  He conceded that they were able to get “some pet projects in.” We discussed the fact that part-time City Council members simply do not have the time to get as deep in the budget as might be needed for effective oversight. Add to that the lack of confidence in some previous staff and there was a dangerous situation. He said most Council members spend 20-30 hrs max per week and he spends more, but it isn’t enough time or focus to give it their full effort, when they also have jobs/businesses and families to take care of.

When asked if he thought that a more independent Auditor-Controller could be effectively used as eyes and ears for the Council, as had been suggested by Larry Stein and others, he said yes and that he had recommended/likes that. He also thought about using the Treasurer, but there are questions about that and what should be the qualifications of a Treasurer to do that.

Regarding budget adjustments, he had the following to say:

Pensions must be sustainable and they are not. He said “unions are very important to America and have their place, but they must be reasonable and realize that the pension system is simply unsustainable and make concessions.” I asked him what he thought about being forced into bankruptcy a couple of years down the line and he responded that “unions would come to the table before they would allow that to happen.”

The Carmen Adjustment funding for pension cost overages beyond normal revenues is exhausted, which is the reason for the $6.3 annual drain on the budget starting FY 2015-16. I asked him how the city could make $11 million in annual General Fund cuts. He said that would be very difficult. In response to questions about revenue enhancement via Carmen (property tax add-on) or other funding sources, he said that would require a vote (presumably public). He did not seem at all enthusiastic about that possibility.

When asked about the impact of the $16 million internal loan out of Measure “O” and the water fund, he conceded it would create its own problems of exhausting reserves and diverting funds from their intended purposes. He volunteered that it might also be perceived as a justification for utility rate increases, which he said it is not and should not be perceived as such.

We briefly touched upon the Channel Islands Harbor management agreement with the county, which is still up in the air. This is because the City Council and residents want more say in development projects and are unhappy about the state of the Casa Sirena, Lobster Trap, Fisherman’s Wharf and some other lower harbor properties.

Mayor Flynn said the Council will make the hard decisions on cuts and revenue issues and needs input from staff to do that. They want to avoid layoffs to the extent possible via performance-based management/budgeting, working with the unions and innovations/restructuring. He said “public employees see the handwriting on the wall… we can’t use savings to bail everything out. We must live within our means.”

 

Mayor Pro-tem Carmen Ramirez, when questioned tonight said the following (shortened and paraphrased):

We have a major problem. I want to hear what is said at the meeting Monday- from the financial guy, the public, City Manager Nyhoff, who’s the best thing that happened to us in a long time-  and get answers to my questions before rendering an opinion.

It will be very different when we get the full story. Even the  audit didn’t get the  full story- there is more- we’re looking forward to getting it. Then we need guidance on what our options are. This is all very disturbing.

We have major infrastructure needs too- water, wastewater- the needs lack fiscal means- this is a public safety issue too- we know that well.

I will not venture further opinions until after the meeting.

 

Councilman Bert Perello

Councilman Perello was very upset that the meeting package was dropped off at his house and much of it was a surprise. He said he heard it was in a newspaper before he even read the report. He doesn’t feel the council was getting the straight scoop and has many tough questions for today’s meeting. He seems more of a budget hawk than the other Council members.

 

Public speaks out

Jim Lavery, retired municipal financial executive (Inglewood, Culver City Controller), has been very vocal about his objections to city financial policies, as well as operational and human resources policies impacting finances. He is widely considered by many as the dean of public speakers on financial matters. Lavery claimed for years that the city was in dire financial straits and says he now has confirmation from city staff. He has been absent of late due to health problems, which now seem to be stabilized. He said he has previously volunteered his services to the city for free, but had no takers.

He would ask staff “what have you been doing all along?” “Reserves will be drained down to $2 million….. $1.4 million is going to outside consultants (Management Partners and Renne Sloan)….  Deis (Management Partners) and Millicam (Interim Financial Director) are bright guys, good quality of work… Renne Sloan doing great work…. Nyhoff is the only one consistently talking about it (financial problems).” (Lavery later wrote: I never meant to convey this; I believe the opposite, that Nyhoff has been derelict in this regard. 5-4-15 1215 pm)

Lavery further opined “The Council is loathe to cut anything…. Don’t know if Nyhoff has the guts to put out a plan (addressing it)… Cops, firemen used to make end runs to the council.” When asked about Fire Chief Williams departure and whether he thought it was related to Fire Station 8’s $24 million cost and millions in annual operating costs, he replied that “Williams was having problems with subordinates.” 

He said City employees will ask, “why did I lose my job when the other guy does nothing all day? …. They (City) act like they’re whistling past the graveyard…. I wish that the staff report (for the Monday meeting) had some concrete plans to fix things.” He thought they night have to close a fire station, cut back on recreation, reduce parks budget. He favors selling the golf course and believes that the excuses why it can’t be done are invalid.

He said “they (City) used up all resources and threw money at the successor agency (Redevelopment Successor). … Then they did the (Community) forum survey as if the City was flush (with cash). What’s the point?…. Then they did salary increases,  then the pulled a 180 and said they’re broke and have no reserves….There is workers’ comp. liability …. Measure O is not even in there (General Fund), but they borrow from it….  They don’t know what cuts to make…. They could make up 25% by raising fees, but the rest will be hard cuts …. There are so many (position) vacancies already… Dipping into resources to pay public pensions… What can be covered? They don’t know exactly what it is….. they used to have $20 million in actual cash… don’t know how much is cash (now) …. They’ve got such a huge credibility gap.”

 

Mr.  Phillip Molina a former Oxnard Finance Director, told us that he spoke out on irregularities and corruption, found himself fired and mired in decade-long wrongful termination litigation, ultimately successful when an $875,000 settlement was awarded and an additional $200,000 in back salary (the latter was never paid). This happened while his wife was painfully dying of cancer and he just wanted to end the legal struggle.

When asked to succinctly summarize what the “Carman Impact” is (appears on page 14 of the attached report shown in this article), he said it’s a 1951 vote which simply  asked the voters if the city should contract with CalPERS to provide retirement benefits for police and fire. However, there was no language in the ballot measure and no indication that the voters intended for an additional tax be placed on their property tax bills to cover those added costs. You may note the $6+ million revenue going away in 2015-16 shown therein and every year thereafter for the time of the report.Molina said Oxnard may be forced to make very painful cuts, such as cutting police and firefighting protection, which constitute the lion’s share of general fund expenditures.

When asked to succinctly summarize what the “Carman Impact” is (appears on page 14 of the attached report shown in this article), he said it’s a 1951 action which allowed property tax increases to pay for excess public safety pension costs. You may note the $6+ million revenue going away in 2015-16 shown therein.

Public sector compensation, which once lagged the private sector considerably, now significantly outpaces it.

Molina says that requests made to the Oxnard staff to allow the public to view source documents, actual invoices etc., concerning the Landscape Lighting Assessment District costs had not been successful. In a different matter, he feels that some city actions, which Mr. Nyhoff identified during prior council meetings may be in violation of Social Security Act Sec. 218 in that the City decided that the LBE (limited benefit employees)  would not be covered by either CalPERS nor Social Security and that in the past the IRS has held public officials accountable for similar offenses.

 

Lawrence Paul Stein, local accountant, frequent meeting speaker, former candidate for Mayor:

It is my opinion that Prop 218 was specifically written to outlaw cities who

control an Enterprise Fund to ‘borrow” the funds from an Enterprise Fund and

lend the funds to the General Fund. Why the city attorney, our new city manager

and our acting finance director have a different opinion is beyond my simple

understanding.

Jean Joneson, local civic activist, co-organizer of this year’s community forum

5-3-15   Good afternoon everyone,

I am not surprised but disappointed as to how this council has not been re-called for the continued decisions regarding our city operations.

I am hoping the residents/taxpayers speak up on the opposition of borrowing money from Measure O. We the people were first mislead on that measure and now you want steal from that measure is wrong. You as a body have been borrowing from many departments within the city and do you pay them back? Will you will pay Measure O back?

Is there a paragraph or sentence that states you can borrow from a measure the taxpayers approved for other purposes and now you want to borrow from that fund? Should not the residents vote on that thought?

Are you trying to avoid bankruptcy? This is not the way to do it. Cut staff and your part-time employees.

This is just the beginning for the city’s past mistakes and failures.

 

Last and certainly not least, a knowledgeable local Citizen sent the following questions and comments:

“My questions come primarily from the one page of Mr. Nyhoff’s handouts which is attached:

  1. The report rightfully complains that past city manager allowed one time loans to be used to pay for ongoing budgeting matters. One time loan should be used for one time usually capital projects. However, after complaining about this poor budgeting Mr. Nyhoff proposes to do the exact same thing by borrowing from Water and Measure O to pay for ongoing budgeting matters.
  2. The $16 million  loan simply allows for a decrease in the 14-15 budget, because the handout shows continuing annual budget cuts of over $10 million each and every year.
  3. The cumulative budget cuts that are required in the period shown on the handouts exceeds $107.8 million. This isn’t an answer to Oxnard’s budgeting problem and will force the next years’ budget officers to make continuous cuts, which sooner or later will require cuts in police and fire or you will have a very lopsided work force.
  4. Which “Assessment Dists” are being shown?
  5. landscape lighting, or
  6. 1911 districts, or
  7. 1914 districts, etc.?
  8. How did the Assessment District get into this shape that now requires annual payments into those districts?
  9. Even though CPI has changed on an annual average of approximately 2% the handout sues 3% increases in revenues the first 5 years and 2.6% increases in the last years. How realistic is this?
  10. Why does the “Net Carmen Impact” require that the general fund pay over $5.2 million each and every year. Did the actual vote call for a property tax increase? Did the actual language on the ballot tie a property tax increase with the inclusion of covering police and fire with CalPERS?”

~~~~

Oxnard 2014 Comprehensive Annual Financial Report (CAFR)

_________________________________________

George Miller is Publisher of Citizensjournal.us and a “retired” operations management consultant, active in civic affairs, living in Oxnard.

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Charles Muller

OMG. This is the second time I’ve moved to a city that went broke. Hope I didn’t cause it. Can it really be that bad? Why isn’t someone in prison for this? Some of it seems like just incompetence but some seems more sinister. There is talk about “accountability,” but who is actually being held accountable? I suppose all those “resignations” and “retirements” might be attributable to that: HR, Finance, Planning, Fire Dept, City Manager(s).

I would like to come to the meeting, but unfortunately am in Baltimore this week (but not in the riot area). Talk about bad places.

Thanks for providing so much info.

Jim Lavery

This is excellent reporting. Maybe you could make it a handout for tonight’s meeting.

I have some quibbles with your quotes:

” Lavery claimed for years that the city is bankrupt and says he now has confirmation from city staff”.

I believed for a long time that the City was in dire financial shape, but I did not believe that it approached the level of insolvency until I read tonight’s report.

“Nyhoff is the only one consistently talking about it (financial problems).”

I never meant to convey this; I believe the opposite, that Nyhoff has been derelict in this regard.

“When Williams was quizzed about the reports on response times used as a justification for Fire Station 8, he never produced them, Lavery said”.

I never have made any comments about response times; my problems with Fire station #8 are the excessive cost and the financing mechanism used to build it.

Steven Nash

Thank you, Mr. Miller. You know, I kind of wanted to believe that things weren’t as bad as they were. Well, my naive hope has been crushed by the cold, hard figures presented in George’s article. I do want to express my gratitude for your interviewing the only credible financial experts in this whole furshlugginer mess, Messrs. Lavery, Stein and Molina, and of course, Mr. Miller himself.

I don’t think I’ll talk on this tonight because I feel beat up, abused and drained by the way Oxnard has been run, the lack of accountability and the reduced future we are leaving our children because of our poor, poor governance and financial acumen.