Thursday, November 15, 2018     Volume: 19, Issue: 37

Santa Maria Sun / News

The following article was posted on June 27th, 2018, in the Santa Maria Sun - Volume 19, Issue 17 [ Submit a Story ]
The following articles were printed from Santa Maria Sun [] - Volume 19, Issue 17

'Totally exhausted': Santa Maria dips into reserve funds to balance budget

By Spencer Cole

Santa Maria has a balanced budget for its next two fiscal years, but the equilibrium came at the cost of millions of dollars in precious funds usually reserved for times of economic instability. 

Officials say the move was necessary given the city's growing pension payout obligations, which saw a spike of nearly $4 million in California Public Employees' Retirement System (CalPERS) costs compared to just a half decade ago. 

It's a grim reality that Santa Maria and virtually all cities across California are wrestling with as the pension program continues to drive up expenditures and dwarf revenues. 

"We've known for several years the obligations are increasing very significantly," the city's Public Information Officer Mark van de Kamp told the Sun. "I would actually say they are skyrocketing." 

CalPERS is projected to increase in cost by $1.3 million in the next fiscal year, according to city staff documents. Expected costs will continue to rise at a clip of about $1.2 million annually for the next five years. 

The bump in expenditures is part of the reason the Santa Maria City Council faced an $8.5 million deficit in the first year of the biennial budget's general fund. And it's why council members ultimately opted to pull funds from the city's Local Economic Augmentation Fund (LEAF) and additional monies from its Economic Stabilization Fund, the latter of which has never been drawn upon except in times of recession. 

Van de Kamp explained that LEAF, which at its peak held about $11.7 million, would give the city an extra $2.6 million this coming year and an additional $1.1 million in 2019-20. By then, he said, the reserve would be "totally exhausted." 

After that, should Santa Maria need to, it will draw up to $3 million from its stabilization fund (currently sitting at $19.8 million total). According to van de Kamp, the city may be able to avoid using money usually saved as reserves in the event of a recession, but only if it opts to not fill vacant positions and thus save cash off what would have been those employees' salaries. Currently, Santa Maria has between 20 and 30 vacancies that it does not plan to fill until the next two-year budget cycle. 

On June 19, at the City Council meeting when the budget passed, some on the council expressed concern about digging into the stabilization fund.

"My concern is we won't have the reserve funds when there is a recession," Councilmember Etta Waterfield said at the meeting. 

Van de Kamp told the Sun that the city had drawn upon the fund a couple of times before, but both instances were during a recession, which is why the move initially drew pause from city staff and officials. There's also the overriding fear of the return to dismal economic conditions that plagued the country during the Great Recession of the late 2000s. 

"We're not sure if there will be a recession in the next two years," van de Kamp added, "although there are some people around the state warning there will be." 

On Jan. 10 of this year, Gov. Jerry Brown told California's Legislature to not take the state's economic stability for granted

"What's out there is darkness, uncertainty, decline, and recession," Brown said that day. "So good luck, baby."

His proclamation came alongside the unveiling of an additional $5 billion for California's emergency fund, bringing it up to a robust $13.5 billion in an attempt to prevent layoffs and "soften" other cuts in a potential downturn.

It's a warning cities like Santa Maria are trying to heed. 

"History shows us that recoveries don't last forever," van de Kamp said, "so at some point there will be a recession." 

Thus, a lot of municipalities are caught between a rock and a hard place because despite the rising pension costs that are sapping funding, the economy overall is doing pretty well. National, state, and local levels are all essentially at full employment; March of this year marked the 90th straight month of economic growth since October 2010; and in December 2017, California's unemployment levels fell to the lowest since the state adopted its current record keeping format. 

"So things are looking good for the overall economy," van de Kamp said. "However, in the case of Santa Maria–like so many cities around the state, as well as other agencies–they are all struggling to make ends meet." 

That's another reason why Santa Maria's staff and council are so frustrated with the current budget situation, which has left the city with tough choices, such as closing offices at city hall on Fridays so skeleton crews can catch up on work. 

Santa Maria’s city council opted to dip into two reserve funds in order to balance its budget for 2018-19 and 2019-20. Officials say the move was to offset increasing expenditures that surpassed current revenues. A main driver behind the council’s decision was related to the city’s pension payout obligations, which are currently running to the tune of roughly $1.2 million annually.

"It's worrisome. It's disquieting. It's frustrating that the budget situation is this serious, this deep into the recovery," van de Kamp said. He added that despite the rising CalPERS and pension costs, the city is raking in revenue that exceeds pre-recession numbers for its top money-gathering taxes, which are sales, property, transient occupancy (hotels, motels, etc.), and construction permits. 

The increased revenue is one part of Santa Maria's economic picture that is rather rosy compared to the hit the city took during the last recession. 

"The Great Recession really clobbered city revenues," van de Kamp explained, noting revenues in the general fund fell by nearly 20 percent during that time. "The local government revenues, which are necessary for government operations, were down tens of millions of dollars. We had to make a lot of huge adjustments." 

Even though the revenue levels have recovered, the city still saw considerable population growth over that time�"for example, more than 2,000 people moved to Santa Maria in the past year alone. And with more people, comes more demand for services like police, water, and public transportation, further driving up what van de Kamp calls "the cost of doing business."
"That amount of people may not sound like a lot, but each of them wants and needs, and deserves, their city services, and we are a full service city," van de Kamp said. "But the cost of providing services is outpacing revenues." 

Hence the city's turn to reserves normally meant for "rainy days," or in a worst case scenario, recessions. But as those funds are slowly drained dry by the steady trickle of pension payout and basic operations, Santa Maria will need to address its growing funding problem. 

Van de Kamp cited the Enos Ranch Business Center as a positive for the city's economy, driving up sales and property tax revenues while encouraging development. He said the council had also directed staff to conduct a fee study to see if the city should begin charging fees for some services that it currently offers for free or at too low a price.

"We believe there is room for adjustment, but it needs to be defensible," van de Kamp added.

The city also has several capital projects set for future years, including a new landfill that is expected to last for a century. 

At the meeting on June 19, one citizen brought up how revenues from recreational marijuana could help offset some of the rising costs. The city currently bans recreational cannabis in all forms within its limits. When asked by the Sun if the topic would be reconsidered, van de Kamp said the council had "not indicated they are going to change their minds."

On July 3, city staff plans to bring a document to the council that would allow them to choose whether to put a measure on the November general election ballot regarding Measure U, which provides crucial dollars for city services, including public safety. The funding runs out after this fiscal year. The process, van de Kamp added, was ongoing.

"We don't have a lot of details right now, but we've been doing a lot of community outreach," he said. 

In the end, Santa Maria has many options to mull in the coming years and months as it weighs the costs of doing business. 

"We're still 10 years into this [since the recession]," van de Kamp said. "Even though we're being conservative, we've still done some good things. ... But we're still facing a lot of problems. 

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