Budget Advisory and Financial Planning Committee Advice to Council
“In reviewing the City’s long term projections and considering the current economic situation, the Committee reminds the Council of several things:
• The financial projections seek to maintain, over the long term, an 18% General Fund balance (which, the Committee thinks is prudent). Achieving this target, however, requires that the City eliminate or reduce transfers to the Facilities Maintenance Fund, which addresses ongoing and deferred maintenance of city facilities, and eliminate supplemental funding for street and sidewalk repairs beyond the current budget year. Current projections indicate the Facilities Maintenance Fund will be depleted by FY 27-28. Even without incorporating the yet to be determined costs of major capital projects referenced above, the Facilities Maintenance Fund is inadequately capitalized for the duration of the 10- year projections. This underfunding is not sustainable; it will severely affect repair and replacement expenditures within this decade.
• The Committee supports the conservative approach used to establish the budget for transfer tax revenues given their historic volatility. The Committee also supports the modest increase in projected transfer tax revenue, from the $2.8 million consistently used in the recent past, to $3.2 million annually beginning in FY23. This increased budget amount could still be attained with a recessionary pace of sales and/ or drop in sales prices given substantial gains in Piedmont home values over the past decade. The Committee recommends that to the extent actual transfer tax revenue exceeds the conservative estimate, such funds be used to fund the Facilities Maintenance Fund, consistent with prior years.
• The projected pension expenses have increased based on an updated actuarial study completed earlier this year, which assume CalPERS 2 Piedmont Budget Advisory and Financial Planning Committee investment returns decline to 6.0% over the next 20 years. However, future pension costs could still rise should CalPERS investment performance be below target due to a sustained downturn in financial markets.
• The prior funding of the Public Agency Retirement Services (PARS) Fund, supplemented by the proposed capital transfer from the current budget surplus, will provide the City much needed flexibility in managing future pension cost increases, as the City’s obligations are expected to increase substantially over the course of this decade. However, this flexibility may be adversely affected by stock market fluctuations to the extent there is significant decline in values during the withdrawal years.
• As in prior years, the projections continue to show that the long term financial health of the City is dependent on property-related taxes, especially the continuation of the Municipal Services Parcel Tax. The projections assume that the MSPT continues with a standard CPI adjustment each year, and the Committee supports this approach.
• The City continues to benefit from a robust economic recovery and rising Bay Area housing prices. Given the uncertainty as to how long such favorable economic conditions will persist, it is important to continue with conservative property tax and transfer tax assumptions.”
READ the entire Budget Advisory and Financial Planning Committee Report 2021-2022
Budget Advisory and Financial Planning Committee members:
Deborah Leland, Chair
Andrew Flynn,
Cathie Geddeis,
Robert McBain,
Paul Raskin,
Frank Ryan
Vanessa Washington
“…the Facilities Maintenance Fund is inadequately capitalized for the duration of the 10-year projections.” That statement is based on the assumption that annual transfer tax receipts will remain flat at $3.2M for the next 10 years. That is a very faulty assumption, given transfer tax receipts averaged $3.4M over the past 10 years and are projected to reach $5M by 2030.
The other question is how much the Facilities Maintenance Fund needs to be “capitalized”. The Facilities Maintenance Fund has over $8M yet the plan is still a “work in progress”. Projected facility maintenances costs are based on a boiler-plate model of building maintenance and City should start spending from the fund to assess the accuracy of the estimates.