The budget is a topic that isn’t normally of concern to most people; in fact, I would guess that most residents in Lompoc or anywhere else don’t even know what’s in the budget or how it is prepared. Most certainly very few people know anything about the principles that govern municipal budgets. History suggests that elected officials don’t know these principles either or just simply ignore them.
Municipal governments operate using a two-year budget cycle; the staff proposes and the City Council authorizes this financial strategy. But sometimes the elected officials’ thought process is hard to understand.
Prior to the approval of Lompoc’s current budget on June 15, the management services director advised in his staff report that: “The above City Council action (approving the budget) would set the biennial budget at a $1.3 million surplus. However, after consideration for expected COLA [cost-of-living adjustment], and budget reductions, the current proposed budget is projected to have a $.6 million deficit.”
He and the council knew that the city was in the process of negotiating pay/benefit raises for all the city employees. Although the amount wasn’t publicly known yet, I guess he was setting aside some money as a “reserve” to cover the increases. You see, he couldn’t list the increases in the budget because no raises had been agreed to and/or approved yet.
Then the council authorized a total of $1.8 million in pay/benefit increases.
There is another aspect to the budget that is as important as day-to-day operating costs are—it’s what’s known as the “stabilization reserve.” In 2011, the City Council passed a resolution that stated, “Whereas, the policy entitled ‘Fund Balance Policy—General Fund and Other Governmental Funds’ states the intent of the City Council to maintain a minimum of two months of regular general fund operating uses in the stabilization reserve when amounts are not adequate to fund the stabilization reserve commitment of $4.6 million.”
But poorly thought-out City Council majority actions (led by former Councilmember Jim Mosby) that ignored the 2011 resolution during 2017-19 budget preparations, an informed source said, resulted in the following: “We had $4 million in reserves on June 30, 2017; $3.5 million on June 30, 2018; $2.5 million on June 30, 2019, and $0.5 million on June 30, 2020. So, for example in 2017-18, the target would have been between $6 million to $8 million.”
Mosby also led an effort to keep a 1 percent sales tax increase off the ballot that year, which plunged the city into a deep financial hole.
All of this could have been avoided; my source goes on to say, “Had we [the citizens] been able to vote on a sales tax in 2013 as requested by staff, we would not be in this position to crawl out of. So, a substantial portion of the remaining Measure I and cannabis taxes will need to go towards repayment to the reserve over the next five years.”
In 2020, a 1 percent temporary sales tax increase was approved by voters, but another Mosby-led initiative committed all these new funds for the 15-year life of the tax to pay down pension debt. So in a few short years, initiatives led by former Councilmember Mosby eliminated the reserve fund and any chance of a tangible benefit from a temporary sales tax increase.
To sum up, in 2021 now the staff was telling the council that they had a “surplus,” when in fact they were already $8 million in the hole and still hadn’t approved any raises. Well, on Aug. 2 the council approved the final raise package; all the city raises had reached a little over $1.8; thus, it appears that in one month the council had eliminated the “surplus,” authorized a substantial operating deficit, and did nothing to address replenishing reserves.
Certified financial planners will always recommend that families have a reserve fund to cover unplanned expenses like plumbing, roof, or car repairs. The Governmental Accounting Standards Board is the authoritative body that sets accounting principles for governmental entities, such as the city of Lompoc, which are designed to bring greater clarity and consistency to fund-balance reporting.
Municipal bond analysts review fund-balance information for credit reviews of existing or pending municipal bonds. Fund balance refers to the difference between assets (what the city owns) and liabilities (what the city owes) in the governmental balance sheet.
The city currently has some substantial infrastructure needs; since there isn’t any funding available to address these needs, a municipal bond would seem to be reasonable solution. Borrowing money for fire or police station construction or major park overhauls isn’t new; many cities use this method to provide needed services to their citizens.
But by totally depleting the reserve fund and having no plan to replenish it any time soon, the great political thinkers have probably taken this option off the table. The interest rate for a municipal bond would be substantially higher because there were no reserves to use as collateral.
I have been watching the actions taken by our City Council for about 30 years. It doesn’t seem to matter who is sitting in those five chairs—they always seem to have trouble with city finance, specifically with the strategic thinking that’s necessary to sustain the city and allow the infrastructure to grow as the demand for services increases.
Ron Fink writes to the Sun from Lompoc. Reach him through the editor at clanham@santamariasun.com.
This article appears in Aug 12-19, 2021.