Vinay Pimplé: On the Budget Deficit


The time has come for everyone in Richmond to be honest / transparent about city finances. The Moody's downgrade last month was a major downgrade: a full category or three notches. Downgrades are usually just one notch. The city's rating is now close to junk bond status at a time when the Bay Area is experiencing a big economic boom. In addition, the city has been placed on a negative watch for possible future downgrades.

To those of us who have been studying city finances, this was no surprise. In fact, the Moody's downgrade fails to mention the $6M reduction in revenue from the Chevron tax settlement beginning this year. Had Moody's factored this in, the downgrade may well have been even bigger.

Yet, there is no one who has consistently and systematically raised the issue of the city's finances. City Manager, Bill Lindsay, who deserves kudos for maintaining the quality of city services despite reduced number of employees, also deserves equal criticism for not highlighting this issue. When top city management skirts the issue of precarious city finances, it becomes very difficult for city council members and union representatives to push responsible solutions like rational benefit packages. 

My big fear is that the City Manager will deepen the city's financial problems by presenting a budget balanced through various shenanigans. 

Measure U funds meant for roads, parks, etc. will be raided in spite of the fact that city council voted for half the total funds to be used for road repair, and with substantial front loading of the spending.

Most of the $10M from the sale of Terminal 1, a one shot deal (assuming it goes through), will be used to balance the budget.

Why is this bad?

An economic boom is the time to build up our city’s reserves (our rainy day funds) so that we can manage unexpected catastrophic events like the collapse of the Dornan Tunnel or the El Portal sinkhole. It is certainly not the time to use one time sales of city property merely to balance the budget.

The cost of repairing streets escalates dramatically when it is postponed. For example, the cost of repairing streets in very poor condition is twice that of streets in poor condition, which in turn is twice the cost of repairing streets in fair condition. Thus, we will have to make much bigger cuts in services if we postpone these repairs.

Most important, such a balanced budget will create a false sense of security. The city will negotiate contracts with its two biggest unions (SEIU and RPOA) during the next year. With a false sense of a balanced budget, the unions will be reluctant to make the necessary adjustments. 

What needs to happen?

At least 75% of Measure U funds must be used for road repairs. If we postpone this, we won't be able to afford maintenance in the future because it will mean much deeper cuts in services.

The $10M from one time deals like the sale of Terminal 1 must be spread over at least the next five years, which is when we expect a significant increase in property tax with the modernized Chevron plant coming online.

The budget presentation must contain a projection of the city finances with anticipated revenues and expenses over the next 5 – 10 years. This must factor in the widely anticipated increases in employer contributions to CalPERS.

A clear plan for paying off our OPEB liability must be included in these projections.

Points one and two are necessary to ensure that we at least stay in place - that we are not kicking new cans down the road. Points three and four are the litmus test for the transparency and credibility of the budget process. Without points three and four, we won't even have taken the first step to financial responsibility, namely, knowing the nature and scope of the problem we need to solve.

Photo courtesy Contra Costa Times

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