Faced with a looming hole in its budget wrought by an anticipated spike in employee pension costs, the San Luis Obispo City Council has chosen to spread the pain around to cover a nearly $9 million projected deficit and avoiding employee layoffs.
The Council decided to take a balanced approach to addressing the City’s projected $8.9 million budget gap resulting from increased pension costs mandated by the California Public Employees’ Retirement System (CalPERS).
“In alignment with the City’s current major city goal of Fiscal Responsibility and Sustainability,” City Manager Derek Johnson said in a news release, “City leadership spent several months developing a recommendation for the building blocks of a ‘Fiscal Health Response Plan’ [FHRP], guided by community and staff input.”
The “offsets” they decided upon are predicted to meet the expected hit in Fiscal year 2020-21. The City’s total unfunded liability with regards to its pension accounts tops $148 million, which is the difference in what is owed to its retired employees vs. what’s on account with CalPERS.
CalPERS hasn’t achieved the projected return on its considerable investments for many years and is expected to recalculate and reduce its rate of return, which will mean big increases for every municipality that is part of the massive system in order to cover the shortfall.
The City plan would include three main parts: reducing operations and instilling “new ways” of doing business; raising new revenues through new taxes; and getting compensation “concessions” from its employees.
It would also increase revenues from its enterprise services, but the idea is to minimize the impacts to residents in both rates and services rendered.
“We have concluded that we need to take a balanced approach that maintains our commitment to good fiscal management,” Johnson said, “quality public services and the employees who provide those services.”
The plan divides the cost between the General Fund for $7.5 million, and enterprise funds at $1.4 million.
The plan projects covering 30%-40%, some $3 million of the deficit, with operating reductions and new business practices that have not been detailed at this time.
Some 20%-30% would come from employee concessions, i.e. having employees pay more for their benefits and retirement accounts. This accounts for some $1.7 million but the City is obligated to negotiate salaries and employee contracts “in good faith.”
Some 30%-40% would come from new taxes. Specifically mentioned were a tax on sales of marijuana in town, though the City Council has not yet finalized its cannabis ordinance, and has not yet gone to voters to approve a tax system for the evil weed.
Johnson told The SLO City News that he anticipates they would go to voters for a taxing plan at the November 2018 General Election. The cannabis taxes, assuming they are approved, would generate from $500,000 to $3 million “based on all the uses allowed by State regulations,” said Johnson. “Actual revenues collected would depend on the range and scale of activities allowed in the City, as directed by Council and guided by public feedback.”
For example, in Grover Beach voters approved taxation of pot sales at medical dispensaries that it intends to allow, plus taxes on commercial grows and manufacturing centers based on square footage.
SLO also proposes a “Storm Water Parcel Tax,” which would raise another $1.5 million a year, starting in 2020-21. However, this tax would require a two-thirds approval by voters.
The Enterprise Fund portions, totaling $1.4 million, would come from the water, sewer, transit and parking departments, and “will be met through various strategies unique to each fund. Enterprise Fund revenues are those revenue projections based on approved and historic rates and revenue growth trends.”
Generally, enterprise fund revenue increases come through new developments and rate hikes but according to a news report, the City isn’t planning big rate hikes. “The primary reliance will be on doing business differently and employee concessions,” said Johnson.
By law, revenues from enterprise funds must correlate with the costs to provide those services, though cities and counties have leeway to siphon off revenues through cost allocation programs, essentially reimbursements to City Hall for services rendered to the enterprise fund, like city administration, legal, HR and payroll, among others.
According to a story in The Tribune, one councilman wanted to look into passing some of this off on tourists, as just a 1-percent hike in the transient occupancy taxes would raise $700,000.
What wasn’t contemplated, was employee layoffs, as it was reported that they’d need to let some 68 employees go or cut their salaries and benefits by 18%, which the Council decided wasn’t tenable.
-By Neil Farrell