The City of San Luis Obispo is entering its next 2-year budget cycle in pretty good shape, though there is concern about the slowing of sales tax revenues and increases anticipated in unfunded pension liabilities.
The SLO City News sent the City Administration a series of questions to further clarify its budget picture and Assistant City Manager, Derek Johnson, provided the answers.
Q: How much is SLO’s general fund budget?
A: $61,718,686 (General Fund including Local Revenue Measure)
Q: How much is the City’s overall budget, including enterprise funds?
A: $135,984,850 (2016-17 supplement)
Q: Are you anticipating a balanced budget this next FY and the one after that or will the City have to make cuts?
A: The City’s prudent fiscal policies and City Charter require that we have balanced budget. Revenues are forecasted to flatten and CalPERS increases will require adjustments to City programs.
It is still early in the process to determine which programs may be impacted by flattening revenues and projected CalPERS increases.
Five-Year General Fund forecast will be presented to City Council on Feb. 21. The forecast will provide revenue and expenditure projections based on the current level of spending. Revenue growth is softening and has declined since projections six months ago, especially in the sales tax.
CalPERS Board voted at its December 2016 meeting to lower rate of return from 7.5% to 7.0% over a period of three years. The first impacts of this adjustment will impact the City’s required contributions to CalPERS in fiscal year 2018-19.
The 2017-19 Financial Plan will be built based on the City’s fiscal and budget policies, which emphasize balanced budget, and the adopted Council Major City Goals and Other Important Objective that the Council voted on Jan. 28 (see related story).
We are currently evaluating the full impacts of the rate of return rate and anticipate the level of spending in 2017-19 Financial Plan to be lower than anticipated in previous 5-year forecast based on the balanced budget policy and the most recent revenue outlook.
Q: As far as infrastructure goes, are there any BIG projects in the works, like maybe a sewer upgrade or major water system project? We’ve reported on several water main breaks the past year or two, and I think I recall your public works director saying there are a lot of old water lines that need replacing.
A: The Water Reclamation and Recovery Facility (WRRF) will be the largest capital improvement project in the City of San Luis Obispo. The annual Capital Improvement Plan includes the incremental replacement of water pipes and other utilities infrastructure.
The City will likely begin construction in the next 18 months on the proposed Palm-Nipomo Parking Structure.
Q: The fiscal sustainability goal mentions unfunded liabilities, is this referring to employee pensions and if so how much do you anticipate the City being dinged by CalPERS, after the recent down grade it announced to the estimated return on investment? How big is the city’s unfunded liability?
A: The fiscal sustainability goal does refer to addressing unfunded liabilities. The City’s unfunded liability is driven by employee pensions as part of CalPERS plan.
The City’s unfunded liability for all plans as of 2014-15 valuation, was $125,035,536. The City will not have an exact number of the impact until CalPERS prepares and releases its valuation for 2015-16 with lowered discount rate.
The discount rate will be adjusted over three years going from 7.5% to 7.375% in the first year, then to 7.25% and with final adjustment in year three to 7.0%.
Based on CalPERS’ sensitivity analysis released with 2014-15 valuation, to give a sense of impact, lowering of discount rate or rate of return to 6.5% would have increased the City’s unfunded liability for all funds to $172,069,764, or an increase of $46,034,228.
Q: Does the City of SLO have major debt, like a bond issue or other borrowing?
A: The City’s total outstanding debt for borrowing at the end of fiscal year 2015-16 was $80,720,334, which is well below the legal debt margin of $245,005,888.
Q: Is the City contemplating any tax increase measures at this time, for the 2018 ballot(s) maybe?
A: Local Revenue Measure (1/2% sales tax) funds over $7 million per year, contributing to Capital Improvement Program and operating expenditures to support Local Revenue Measure priorities. Additional tax measures were not explicitly included as a part of the goals identified during Saturday’s goal setting workshop.
The City Council discussed the challenges to finance infrastructure and asked staff to return with creative options to address the funding of infrastructure.
— Neil Farrell