YOLO SUN NEWS REPORT :
Political turbulence arising from the roiling city budget crisis “is making the development of the [current] budget more difficult and could potentially place the City in a vulnerable financial position,” announced City Manager, Mark Deven, in his staff report for a key agenda item at the Woodland City Council’s May 5, 2009, regular meeting.
Deven is thus immediately bringing before the council a draft statement of: Budget and Fiscal Policy — “to facilitate discussion of this very important document [ ] in order to receive guidance to finalize the document for adoption as part of the FY 2009-10 budget actions on June 16.”
This new Budget and Fiscal Policy, indicates Deven, contains various elements of material “introduced to the City Council in December 2007 and [ ] referenced and reaffirmed on several occasions whenever major budget / fiscal issues are presented. Staff believes that [its] adoption will address a deficiency in the City’s current financial practices and facilitate financial stability.”
Deven expresses the motivation for advancing immediate adoption of this document by the City Council, as: “comments received [,] community meetings and discussions [with] City Council,” related to his “belief that current level of General Fund reserves should not be further diminished.”
Essentially, the city projects expenditures of about $45 million — while revenues are expected to be about $38.7 million — leaving a $6.3 million deficit that must be erased for the upcoming fiscal year.
He notes that, “based on a $38.7 million operating budget, maintaining the reserves at the present level of $5 million will provide the City with a 13% fund balance which is equal to approximately seven weeks of operating costs.”
As detailed below, the council voiced support, with Vice-Mayor Art Pimentel dissenting, for adopting (on June 16) a — modified version — of Deven’s fiscal policy proposal.
___ FISCAL RESERVE POLICY JUSTIFIED BY STRUCTURAL DEFICIT? ___
Since Deven’s arrival as city manager in mid-2007, a “structural deficit” has been discovered to exist within municipal accounting behavior, meaning that the city has habitually been spending more money than it actually has, independent of other budget problems caused by currently adverse economic conditions.
Deven views this structural budget-imbalance as unsustainable and contrary to municipal interests. He hopes to largely eliminate it within the process of determining the upcoming budget — indicating to the council that progress along these lines is reflected in his current budget proposal.
“The City Council [in October 2008] expressed the need to develop long term strategies to address the structural imbalance and bring General Fund expenditures in line with actual revenues,” Deven recognizes in this staff report.
This fiscal predicament was recently relieved in part through use of a limited series of “one-time sources of revenue” (such as spending the city’s liability insurance reserve fund, revenue from sale of city property, etc.) — as repeatedly emphasized by Deven within his oral presentation to the council.
Deven directly associated this unsustainable budget dynamic with the need to maintain adequate reserves; although, use of budget reserves is clearly contemplated to cover much more that a temporary “structural deficit” which is expected to be largely eliminated for FY 2009-10.
The crucial budgetary distinction related to this situation appears to be that of properly recognizing the precise contours of this “structural deficit” — in the midst of general fiscal consequences of the expanding economic recession.
___ LABOR UNION PROGRESS ON CLOSING BUDGET GAP? ___
Prefacing Deven’s written discussion of this Budget and Fiscal Policy, is a brief budget-status update concerning two key prospects for bridging Woodland’s current budget gap.
As of April 27, twelve eligible city staff members have enrolled in the state’s (Cal PERS) Retirement Incentive Program, “often referred to as the Golden Handshake,” which provides “two years of service credit,” at a (future) cost to the City that is “very manageable,” according to Deven.
“The impact of the enrollment of these employees is certainly favorable from a fiscal standpoint and may allow the desired level of reductions to be achieved without layoffs or with minimal layoffs,” describes Deven. Also, “compensation reductions from the City’s [labor union] bargaining units through the meet and confer process,” may help “minimize layoffs and deeper cuts in programs and services.”
“[C]ompensation reductions” amount to employee furloughs (proposed to save $215,000) and a wage freeze (proposed to save $324,000).
Employee salary reductions, proposed at 1.5 – 3% would generate $310,000 / $620,000 in budget savings.
Closed-session conferences with these union representatives directly preceded this regular council meeting — wherein several councilmembers seemed slightly buoyant / optimistic, perhaps indicating some level of progress toward reaching a broadly beneficial consensus on employee concessions.
Councilmember Jeff Monroe confidently, even light-heartedly exclaimed — without elaborating — at one point in the discussion, that: these budget matters will turn out well in the end.
Although appearing more sober-minded during the council meeting, Councilmember Bill Marble made relatively hopeful, positive remarks while leaving City Hall, about the potential for successfully “avoiding layoffs and finding a few more hours for the library,” despite his desire to implement this reserve-fund policy
Mayor Skip Davies made during the meeting an identical remark about finding “a few more hours for the library,” despite the huge budget reductions being proposed by Deven, as well as his own expressed caution regarding reliance on the existing [$5 million] reserve for resolving this budget crisis.
Adverse results related to critical, just-conducted discussions over potentially key compensation concessions from union representation of Woodland’s employees — would seem to have produced a more genuinely grave and depressive effect on overall council mood — than was apparent during its subsequent, regular meeting.
It seems likely that some significant nature of relevant progress on municipal employee relations and cooperation was achieved during this prior, closed-session.
___ NEW RESERVE FUND POLICY ___
A relevant component of this proposed Budget and Fiscal Policy is the practice of maintaining a certain level of reserves within each municipal fund (General, Enterprise, Redevelopment, Internal Service).
Formal designations and processes being proposed for these various funds will bring Woodland into conformity with fiscal practices of the Government Accounting Standards Board (GASB), “charged with regulation of public finance,” relates Deven.
“Approval of this policy would require the City Council, City Manager and all appointed officials and employees to apply each element,” indicates Deven’s report. “While certain elements such as the formalization of reserve levels and designations for all City Funds are new, other elements should be familiar to the City Council as they are part of the Guiding Principles that have been discussed in association with significant fiscal actions.”
These (seven) elements — Budget and Fiscal Policy “procedures” — are: Reserve Funds, 10-Year Financial Planning, Performance Based Budgeting, Capital Improvement Program, Internal Service Funds, Enterprise Funds, and Review and Adopt a Performance-Based Budget.
___ RESERVE FUND INFLUENCE ON FISCAL STABILITY ___
Deven focuses his instant report on the “procedure” of Reserve Funds, “since the community and Council discussion in this area has been significant and has the most potentially serious impact on the City’s fiscal stability.”
This budget “procedure” maintains (annually replenishes any deficits of) specifically prescribed balances as a tiered, reserve fund within each municipal, fiscal account.
Three levels of reserve balance exist within the GASB accounting program, committed, assigned and non-assigned.
The Committed Fund Balance refers to the level of reserves that are set-aside for — truly unanticipated and catastrophic occasions (and to demonstrate fiscal stability / prowess) — since the Assigned Fund Balance is explicitly intended to repair fiscal damages resulting from all possible causes, including natural and man-made disasters and any conceivable form of economic calamity.
Non-assigned balance simply refers to whatever monetary surplus happens to arise within either committed or assigned balances. Deven states that these are “essentially surplus funds that can be used as working capital to offset the year to year fluctuations within each fund.”
“In consideration of the fund balance designations described in this report and within the proposed policy, it is important for the City Council to note that staff reviewed reference material, evaluated other local government policies and discussed this matter with municipal finance consultants,” states Deven.
“We didn’t just make it up,” Deven exclaimed to the council during his oral presentation.
Financial consultants, etc., recommend that municipalities generally keep from 10% to 15% of annual operating expenses within the committed category of reserve fund, with an additional 5% to 15% in the assigned fund tier — thus retaining up to 30% of annual budget expenditures within these separate reserve funds.
“Staff believes the proposed Budget and Fiscal Policy will establish a comprehensive approach to facilitating long term financial stability. It is important to note that the proposed policy will not be easy to implement. Developing ten-year forecasts, maintaining designated reserve funds and evaluating capital projects to make sure that sufficient operating funds are available when the improvement is completed requires additional work, financial discipline and the willingness to reprioritize expenditures if necessary,” states Deven’s report.
___ COUNCIL AND PUBLIC RECEPTION ___
Three members of the public spoke in specific opposition to immediate adoption of such a program of reserve funds (although not against other elements of this proposed policy). No one from the public spoke in support of this reserve-fund program or the overall policy item.
Public criticism amounted to concern that this program was elevating bureaucratic form over community substance — too “ideal” to serve the city’s interests under currently dire fiscal circumstances — and as purporting to eliminate essential, overall flexibility from Woodland’s address to this ongoing budget crisis.
All three speakers from the public were also deeply concerned with the fate of Woodland Public Library, related to the current staff proposal for a –38% cut — of its tiny — 3% — slice of the municipal budget.
Library Board Chairperson, Bud Godding, focused his remarks on emphasizing Councilmember Jeff Monroe’s comment within a recent council budget workshop that: “The sky has fallen” — by way of arguing for whatever flexibility is required to serve community interests related to the library in this budget crisis, despite any technical reserve-fund stipulations within new budget policy.
Councilmember Monroe expressed his support for adoption of this policy, nevertheless, while several times noting that: “it isn’t a law” — simply a guideline — which can swiftly be voided upon any majority vote of the council.
Councilmember Bill Marble indicated his personal involvement with development of this policy proposal and his concerns regarding evolving economic conditions of the city. He argued that prudence compels adoption of such policy measures, alongside the upcoming budget.
Councilmember Martie Dotie also stated support for staff preparation of a final version of this policy document, for adoption with the new budget.
Mayor Skip Davies spoke at length of his concerns about the following (2010-11) fiscal year potentially being even worse than this one, expressing his perception that local governments will recover from the economic more slowly than the general population, because of a natural lag-time condition within such contexts.
___ COUNCIL MODIFIES PROPOSED RESERVE FUND POLICY ___
This four-member council majority, at the specific mention of Davies and Dote, agreed to modify Deven’s initial policy proposal — for which he had prudently provided such a back-up option.
Rather than placing the entire amount of existing General Fund reserves — $5 million — within the committed category of (retained) balance, the council directed Deven to prepare this new policy document based on his back-up option: keeping about $3.9 million in that fund balance and transferring about $1.1 million into the category of assigned reserve fund.
Although Deven has previously proposed the budgetary option of lowering what will soon be referred to as the Committed Fund (Reserve) Balance in the General Fund — to 11%, from its present 13% — the council went even further — by electing to place 3% of total current reserves in the Assigned Fund (Reserve) Balance category.
This arrangement results in 10% of annual municipal operating expenses being sequestered under this new budget policy (subject to council action), while projecting 3% toward meeting easily anticipated, short-term fiscal demands.
This result reflected Deven’s prepared, back-up option, based on belief — expressed in his staff report — that: “the absolute bare minimum level of General Fund reserves is 10%.”
In reality, therefore — the council majority clearly took a firm and measured step toward retaining practical “flexibility” for best meeting the City of Woodland’s current economic challenges.
While — any contemplated loss of Woodland’s immediate fiscal “flexibility” strongly motivated Vice-Mayor Art Pimentel to dissent from proposed adoption of such a Budget and Fiscal Policy, “at this time.”
The council majority — by setting $1.1 million (3%) aside — meaningfully reflects the basic spirit and justification of Pimentel’s dissent, through supporting Deven’s modified, “absolute bare minimum” option for attempting to immediately implement this new budget policy.
Plus, as Councilmember Monroe explicitly emphasized — this new reserve fund policy may be at least temporarily swept aside by a council majority, if the city budget crisis continues to worsen.