Jul 10 2011

Tax Committee Discusses Firm Cost Controls to Avoid Deficits in Years to Come

At its Wednesday, July 7 meeting, the City’s Municipal Tax Review Committee (MTRC) tackledthe dire financial scenarios that lie ahead for Piedmont unless the City Council makes some major changes.

The Committee projects that – even with renewal of the parcel tax – current trends will result in Piedmont suffering ongoing and worsening deficits in future years:  a $1.6 million deficit in 2015-16 rising to a $3.2 million deficit in 2019-20. The Committee made “base case” assumptions, which  include: property tax revenues begin increasing 4 percent per year in 2013; property transfer taxes increase 1% per year; City salaries remain flat through 2013 and thereafter increase 2% per year; and $800,000 per year payments are initiated to create a facilities maintenance fund.

In draft recommendations to the City Council, Committee Chair Mike Rancer stated,  “Based upon our best projections of revenue and expenditures for the next decade, our Committee concludes it will be increasingly difficult for the City of Piedmont to maintain a balanced budget . . . .   The imbalance between revenues and expenditures will increase pressure to reduce essential City services including police, fire and maintenance of streets and physical facilities.”

Rancer proposed the Council ask voters to reauthorize the parcel tax and that it be assessed at the maximum amount. At the same time he warned if the Council does not commit itself to stronger fiscal controls, MRTC members may withdraw their support for approving the parcel tax.

The Committee analyzed historical trends and prepared financial projections with input from city staff.  Employee benefit costs have escalated since 2003-4:  benefits ranged from 23% to 33% of salary in the decade prior to 2003-4, but have risen to 53% of salary and will continue to rise. (Chart 1) The City will exhaust reserves and suffer increasing deficits beginning in 2015-16. (Spreadsheet 1)

In contrast, firm cost control measures which require employee contributions to benefit costs beyond 50% of salary will achieve a balanced City budget plus a reserve of 15% by July, 2017.  The positive balances will continue in future years. (Spreadsheet 2)

While all the committee members agreed the City is on an unsustainable financial path, Committee member Steve Weinerproposedeven stronger medicine for the City Council. With the support of some Committee members, Weinerurgedthe Committee to recommend the Council make a comprehensive set of reformsbefore Dec. 1, 2011:

• Require increased  employee contributions to  benefit programs to lower the total cost of fringe benefits from 53% to 50% of salary

• Reduce the pension plan for all new city hires

• Allocate at least $1.3 million a year for equipment replacement and maintenance/repair of city owned buildings

• For the Blair Park sports complex, obtain an independent, expert evaluation of all projected costs, including City employee time, to construct and maintain it for 10 years; require the project proponents to place the full 10-year costs in an escrow account before any work begins

• Pay no City subsidy to operate the City swimming pool after July 1, 2012

• Publish the report by the Council’s audit subcommittee on the undergrounding district cost overruns and mandate the Council take positive action in response to the report.

The net result of Weiner’srecommendations would achieve a balanced City budget with reserves of 15% of the City’s total budget by July, 2017 and continuing through 2019-20.

While no one disagreed with Weiner’s proposal, they did not agree on whether the Committee could insist that the City Council act on cost control measures as early as Dec. 1.  Rancer appointed a subcommittee to meet and work out an acceptable draft of recommendations by the next Committee meeting, which is scheduled for Wednesday, July 13 at 7:30 p.m. in the Piedmont Police Department emergency room.

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