It's time for Richmond leaders to stop living in denial and face fiscal reality. With increasing retirement debt and a structurally unbalanced budget, officials risk the city's future if they don't get a handle on the situation.
They must develop a plan to responsibly pay off debts before crafting the upcoming two-year budget. Without a long-range roadmap, the city will merely continue on the route toward a financial cliff.
Richmond officials should understand the gravity of the situation. They approached the brink of bankruptcy a decade ago and only escaped by slashing jobs and services. They have seen what happened since then in Vallejo and Stockton, which each made journeys to bankruptcy court and emerged tattered and forever tarnished.
Or, Richmond leaders need only look a few miles south to Oakland to see what happens when a city repeatedly fails to develop a plan to address its financial obligations. The debt grows and the payments eat up larger portions of the budget, forcing city service cuts and future generations to pay for the fiscal sins of the past.
Sadly, Richmond is in a similar situation.
Its structural budget calls for roughly $146 million of annual spending and $138 million of revenue. In other words, it's spending more than it takes in and eating away its paltry reserves, which will be down to about $8 million by this summer.
But those numbers don't properly account for the bigger problem of retirement debt. For years, the city has been promising its workers pensions and retiree health care. Each year, they should have been investing sufficient money to fund the future benefits employees already earned. They haven't.
As a result, the city's pension plan is $320 million underfunded. And the retiree health plan is short $126 million. It's like a gargantuan credit card debt. The city has a plan, however flawed, to pay off the pension liability, but has no strategy for the retiree health debt. It's not even making the minimum payments.
Instead, Richmond has been paying for retirees' health insurance directly out of the general fund when they draw the benefits. By failing to set aside money in advance, Richmond leaders lose the advantage of investment earnings, they force future generations to pay for benefits that should have been pre-funded, and they obligate the city to rapidly escalating payments that will choke future budgets.
City officials must get ahead of this. That means devising long-range plans to pay off debt and properly fund benefits. Amazingly, the city doesn't even have a five-year budget forecast, conveniently leaving residents ignorant of what lies ahead. That's irresponsible.
Reposted from Contra Costa Times