Ineffective Cost Reduction Strategy

In yesterday’s episode of Missed Opportunities, we told you that the financial imbalance warranted a dedicated article.

Over the last four years, the state has expressed ongoing concerns about El Cerrito’s approach to managing its finances, particularly its lack of a specific strategy for reducing expenditures. Despite recognizing the necessity for substantial spending cuts in its five-year financial outlook, starting with the 2021–22 budget, El Cerrito did not detail a plan for achieving these reductions. In addressing recommendations for cost-cutting, the city has indicated that a study on salary and compensation is unlikely to be undertaken until the 2022–23 fiscal year. The audit report highlighted that any attempts to adjust salary costs would necessitate negotiations with employee unions. In March 2021, El Cerrito reached out to its labor unions to discuss the city’s financial situation, but meaningful discussions on salary adjustments require data from a thorough compensation study.

El Cerrito has also been advised to explore the possibility of outsourcing certain municipal services. Although initially resistant, the city has now included in its corrective action plan the intention to consider this option, engaging both the city council and the community. However, progress on this front has yet to be reported.

The city has also acknowledged limitations in conducting a compensation study, citing cost concerns. Yet, it has not addressed other recommended preparatory actions, such as evaluating its organizational structure and assessing the roles and responsibilities of its current staff. Such analyses are crucial steps before proceeding with a compensation study, which could ultimately lead to significant long-term savings through recommended changes, including potentially reducing employee benefit costs.  Instead of following the State’s advice, the City moved forward with the compensation study, missing out on tremendous cost savings opportunities.

Another point of contention is the management of salary increases for certain management roles. The audit revealed that El Cerrito had approved salary increases beyond established limits, and while the city suspended this practice in 2020, it has deferred a permanent decision on this matter until after the compensation study is completed. This decision is puzzling given the audit’s findings of management salaries exceeding those in similar roles in neighboring cities.

Additionally, El Cerrito’s corrective action plan mentions the elimination of cost-of-living adjustments, but this does not fully capture the financial implications of its negotiations.

Despite forgoing these adjustments for the 2020–21 fiscal year, agreements were made for subsequent salary increases, which are expected to raise costs by at least $1.7 million in the 2021–22 fiscal year. This increase adds further strain on the city’s budget, necessitating the identification of additional cost-saving measures. El Cerrito has proposed a salary freeze for management not covered by unions for the 2021–22 fiscal year, but it’s uncertain how sustainable this approach will be in the long term.

As the city embarks on crafting the budget for fiscal year 2024-25, it is hoped that the City Manager will prioritize meaningful financial planning and structural changes to align expenses with revenue alongside maintaining a positive public image.

The next Article chronicled the cumulative effect of 4+ years of financial mismanagement. Stay tuned.