Jun 1 2013
A 20-page, close-up view of Piedmont’s fiscal health will be presented to the City Council on Monday, June 3, by its Budget Advisory and Financial Planning Committee (BAFPC).
The five-member committee, made up of Piedmont residents with diverse fiscal expertise, focused its analysis on the City’s financial outlook for the next five years, potential financial risks regarding employee healthcare and retirement costs, the Sewer Fund, and some specific steps the Council can take to save money and reduce risks.
Here are a few of the report’s highlights.
First the good news: “Overall, the City looks to be in improving financial shape,” the report states, “recovering as expected from the recent recession, and appears able financially to continue to provide exceptional basic public services. However,” it warns, “there are still risks facing the city in retirement costs as well as sewer replacement and operating costs that need to be addressed.”
City Employee Retirement Costs
In an effort to reduce “uncontrollable retirement benefit costs,” the Committee recommends: 1) the Council refinance the CalPERS pension side fund and negotiate a lower corresponding cap from City employees; 2) compensate employees in ways that do not contribute to their retirement costs, such as giving bonuses instead of salary increases; 3) continue to bargain for caps and sharing on pension retirement costs with new and current employees; 4) reduce current and retiree healthcare cost coverage to 75% of costs or lower, down from 100%, extend vesting of retiree healthcare benefits to 20 years instead of current 5 years; and investigate putting more burden on “Tier 1 retirement employees” (current, long-time employees), if possible.
The report notes the importance of controlling these costs in light of the fact that, “The City faces the likelihood of substantial turnover in the next 5-10 years, as 23 employees have over 20 years of service and an additional 28 have over 10 years of service. We estimate that approximately 40 of the City employees are likely to retire over the next 10 years, with a significant portion in the next 5 years.”
The Committee notes that in FY12/13, expenses of the City-owned pool exceeded revenues by $158,000. Based on the FY13/14 aquatics budget, the Committee projects pool expenses will cost Piedmont taxpayers $200,000 per year in the next 5 years. The Committee also points out that the School District currently does not pay for pool use, and the private Piedmont Swim Team pays a below-market rate for pool use of about $17,000 per year. The Committee “recommends that, regardless of the policy with respect to the School District, proper accounting should reflect the capital/operational costs per user which includes the School District usage as a footnote to the budget.”
The Committee recommends the City restart phased sewer replacement of the remaining 93,000 feet of Piedmont’s mainline sewer in order to save substantial costs over the currently planned small-scale, emergency repair/replacement strategy. Committee members unanimously recommend obtaining a low-interest State loan to restart the phased rehab and investigate potential funding sources — either through a temporary sewer surcharge measure or borrowing from the City’s General Fund — in order to address the projected temporary shortfall in the Sewer Fund beginning in 2016-17.
The Committee believes that the total cost to the City of a “logically phased rehabilitation program” would be lower than making incremental repairs because of 1) lower cost per lineal foot of larger-scale projects; 2) low interest State loans, currently at 1% interest; 3) lower risk of costs escalating if the rehab is done sooner rather than over decades; and 4) less risk of not meeting EPA regulatory requirements.
The report concludes that the City is in a “relatively strong financial position compared to the recent past. However, the risks to the city still exist and Council must stay vigilant to find ways to adequately compensate employees in a controllable way and continue to work to improve the stability of the City’s finances.”