The city has retained local budget consultant Bob Leland, who, building on the work of citizen groups like Project Toto, laid out a comprehensive but daunting budget forecast for the next 20 years.
There was nothing in Mr. Leland’s presentation that was unknown in terms of challenges. But his findings, particularly on pensions and OPEB (Other Post-Employment Benefits), were frankly stunning.
In his comments at the end of the meeting, Mayor Robb Davis said, “I knew the PERS stuff was going to be bad.” He said, “I’m kind of speechless on the percentage of some the (figures) – it’s really high…” He added, “It’s troubling.”
Mr. Leland noted that the recession impacted the growth of personnel wages. Basically, the wages skyrocketed until the Great Recession hit, the graph then shows the wages falling off, but they have recently rebounded and have continued to grow.
“Agencies stopped giving COLAs and that closed the gap,” he said. He said that labor groups note this and in negotiations will say that “it’s been several years and we’re falling behind where we were.”
On health, he said that “health care has increased significantly. Almost 250 percent over the last sixteen years.” The growth rate is about eight percent, well in excess of the two percent general inflation.
The chart (which is unavailable at press time) shows that the steep growth increase is followed by a more level up and down that he said represents the Affordable Care Act period. “It’s unclear what direction the federal government will be taking with health care policy,” he said.
Bottom line: “We don’t know what’s going to happen with health costs in the future.”
In the city, staffing trends declined significantly from their peak just before the recession. “The question is where it goes from here,” he said. Their model adds 1 FTE (full-time equivalent) per year at $145,000 and shows that the FTE per 1000 population will continue to decline at that rate over time.
Mr. Leland’s charts show that general inflation is increasing at about two percent per year, slightly lower than the more traditional three percent. His model will assume about a two percent annual COLA (cost-of-living adjustment) over time.
Mr. Leland projects that the growth rate in salaries from 2001 to 2036 would be about 2.76 per year. The current decline in salaries is not going to continue, he reasons. He believes that vacancies will be filled and labor agreements will take into account cost of living increases over time.
The stunning figure was that pension costs are expected to TRIPLE over the next 20 years, going from about $6 million up to $18 million. He noted, “The rates started to escalate (following the Dot-com bust), so rates that had been under $500,000 a year grew to about $4 million a year. In 2017, $6 million a year. That six million dollars is going to triple in twenty years. We have to be prepared for that.”
The pension hit alone will peak at 20 percent of total General Fund expenditures. To put this into perspective, in 2014, former City Manager Steve Pinkerton was concerned that pensions and OPEB would eat up one-quarter of the budget.
The infrastructure assumptions shows $4 million of ongoing General Fund contribution for streets and bike paths, with 85 percent of that going to streets. He said that they will require additional funds to meet total infrastructure needs.
“There is some hope that the state may come along with a change in the gas tax – the first since 1994 – and get more funding to local agencies,” he said.
Even with the current $4 million spending per year, the street funding gap grows to about $85 million in 20 years. “For most of the years, about half of the need is met, it would take a few more million dollars per year to impact on that,” Mr. Leland explained.
Parks has about $1.4 million per year from the parks tax. “If you were to double the parks tax,” he said, “this will go away.”
OPEB, which is retiree medical, is currently about one-third funded. However, he warned, “it’s still going to take about 22 percent of payroll to fund that for the next 20 years.”
Mayor Robb Davis said, “I think a year ago when we were talking about our budget process – we wanted two things. We wanted the budget – a projection that would show us more or less where we’re going in terms of our spending and our revenue over a period and I think we wanted to push it out more than five years. We wanted to analyze the impact of Measure O potentially going away.
“That’s all here,” he said. However, he said that they wanted something more than just that. “That was the ability to say to the population we have done the studies of needs for roads. We have done the study of needs for buildings and parks, and right now this is what this budget is not paying for in terms of those needs.”
Why is that important, he asked? “It’s important because it means that the buildings will deteriorate more quickly. The roads will deteriorate more quickly and cost more to repair. And we need to prepare people for those realities.”
The gaps in the graphs shown don’t go away – in fact they get bigger, he said, which means lower levels of service and deterioration.
“We need that to be honest with our community about what is and what is not in the budget,” he said.
Mayor Robb Davis said that they are going to go back on both a sales tax and another tax to the public. This gives the public the evidence they need to understand the city’s needs.
—David M. Greenwald reporting