El Cerrito on the verge of bankruptcy but the City Council is putting off cuts until September.

Time to Act Take Action Move Forward Clock Hands Ticking 3d Illustration

I get it. We are all at home trying to do our best and survive this crisis. The last thing people want to be thinking about is local politics. However, this national crisis has only exacerbated what was already a VERY BAD situation in El Cerrito. So action needs to be taken. El Cerrito faces bankruptcy, but council is planning on putting off any action until September

In October when the state auditor said El Cerrito was one of the most at-risk cities, El Cerrito had no financial reserves and no plans to remedy the situation.

Now that we are facing an imminent recession El Cerrito is at serious risk of going bankrupt. The council still has no meaningful plans and has taken no significant actions to improve the city’s financial condition. At the most recent meeting on March 25, 2020, there was talk about putting off any budget actions until September. Which is a quarter into the next fiscal year. Further delays only worsen the crisis.

A bankruptcy may mean that staff will lose pension benefits.

Forced reductions in public safety could mean higher insurance costs for homeowners.

Bankruptcy will surely make things much worse for many El Cerrito community members.

On Tuesday, April 7 the council will begin to discuss the budget but is not planning on taking any action for many, many months. Maybe not until September.

You can submit testimony by emailing the city clerk, at cityclerk@ci.el-cerrito.ca.us. Your email must contain in the subject line public comments –not on the agenda or public comments –agenda item #. The City Clerk will read your comments at the meeting. Please try to keep your message below two minutes. It is important that the comments be read into the record rather than just emailing the council. This creates a record of community concern.

You can also comment via voicemail at (510) 306-2558. The caller must start the message by stating public comments –not on the agenda or public comments –agenda item #followed by their name and place of residence, followed by their comments

A sample message might be:

The state auditor, the independent auditor, and the Standard and Poor’s financial analyst all agree that El Cerrito is in financial peril. It is imperative that the city act now to reduce costs. With City Hall closed, now is the right time to reduce staff size and require the remaining staff to take pay cuts down to the levels of their 2016 compensation. Employee compensation has increased by $4 million per year over the past two years. If staff will not willingly share in the burden caused by poor council decisions for many, many years, then additional people will need to be laid off. Waiting until September as suggested by the Mayor will only deepen the crisis. It is time to act!

Resources

Link to most recent meeting on March 25th is below.

For the April 7th meeting members of the public will not be able to participate directly through the teleconference platform but can watch or listen to the meeting in the following ways:

Cable T.V.
Broadcast on KCRT Channel 8 or AT&T Uverse Channel 992.

Radio Broadcast on FM 88.1 Or 97.73.

Livestream Online At www.el-cerrito.org/CouncilMeetingMaterials

El Cerrito is in Financial Crisis and Residents need to step up their game

California State Auditor Elaine Howle ranks El Cerrito the 7th most financially high-risk city in California, the most at-risk Bay Area city, and the city whose General Fund condition is worst in the state. On February 26, the State of California Approved her recommendation to audit El Cerrito.

  • Once ranked AA-, our bond rating declined steadily to BBB, severely limiting the city’s ability to borrow money.
  • For three consecutive years starting in 2016-17, our independent auditor warned that the city might not continue to be a “going concern,” meaning it was at risk of bankruptcy. The city failed to take effective action each time, and even increased personnel costs by about $4M since 2017!
  • Our General Fund balance declined from $3.3 million in 2012 to a $56,600 deficit for 2018-19. El Cerrito has a 10% reserve goal. Albany’s is 25%, which it meets.
  • El Cerrito increased local taxes four times since 2010. Today our combined sales, transfer, and utility taxes make El Cerrito the California city with the highest combined tax rate, yet the city continues to slide into more financial distress.
  • 2019 revenues were up 10% but 2019 expenditures were up 11%. (From the CAFR*)
  • City staff reported that the 2018-19 fiscal year ended in a surplus, but a later audit revealed a $2.9M cost overrun, with no notification to the city council and no budget reductions. This signals serious incompetence.
  • The city’s taxable sales fell by 5% from 2009 to 2018, while those nearby cities grew substantially: Albany +25%, San Pablo +47%, Richmond +54%, Pinole +35%). During that period, only 17 cities in the state had a decline; the rest averaged 54% growth! City staff didn’t alert the city council or act to combat the decline.
  • El Cerrito salaries for upper managers are bloated when compared with nearby cities. Some 2018 comparisons, including overtime (fire department) and benefits:

—EC city manager: $361,578 / Albany city manager: $229,192.62

—EC asst. city manager: $276,890 / Albany asst. city manager: $165,269

—EC highest paid fire officer: $465,711, 10th highest: $334,141 / Albany highest: $334,122

  • El Cerrito’s fire department is understaffed and clocks a HUGE amount of overtime, flagged as a concern by the state auditor.

What happens now?

  • The state auditor will investigate El Cerrito’s financial condition and management and   is expected to present a report and recommendations in September. 
  • The city’s own financial auditor is expected to make a presentation at a council meeting.
  • The city plans budget hearings in May to prepare its 2020-2021 budget for adoption in June. Mayor Lyman has directed staff to present a menu of $2 million in potential cuts. 

What can residents do?

  • Watch city council agenda, attend council meetings, and speak your mind!
  • Tell council members to start working now to fix the budget, not to wait until May.
  • Tell council members to reduce salaries, benefits, overtime, and unnecessary expenses before considering cuts to important services.
  • Pass this flier on to your neighbors. Not everyone knows what is going on. Action needs to be taken NOW!

If you want to contact City Council Members or the City Managers all of their emails are below

Karen Pinkos-City Manager kpinkos@ci.el-cerrito.ca.us

Greg Lyman-Mayor glyman@ci.el-cerrito.ca.us

Paul Fadelli Vice Mayor pfadelli@ci.el-cerrito.ca.us

Councilperson Pardue-Okimoto rpardueokimoto@ci.el-cerrito.ca.us

Councilperson Janet Abelson jabelson@ci.el-cerrito.ca.us

Councilperson Gabe Quinto gquinto@ci.el-cerrito.ca.us

CA State Auditor to complete a full audit on El Cerrito

In October 2019 the State Auditor made a list of cities in CA that were most at risk of bankruptcy and El Cerrito was #7. They then met with city staff and council members and decided to recommend a full audit of the city, something that some council members and staff opposed. At a hearing on February 26, 2020, the Joint Legislative Audit Committee voted unanimously to order a full audit of El Cerrito. The full letter the state auditor submitted to the committee is found here. Below are the concerns that they identified.

  1. Fire Department overtime which is budgeted at 1.3 million this fiscal year.
  2. Overall cash flow-which now means an increase in short-term loans for the city to meet their obligations.
  3. Pension costs
  4. Lack of reserves
  5. Overall lack of addressing any of these issues.

The chart below shows how the short term lending has increased since 2011. These figures can be found buried in the CAFR (Comprehensive Annual Financial Report). The current 9 million dollars can be found referenced here on pages 102-114 and is specifically called out by the auditor. Notice the increase in the interest rate due to our poor bond rating. The $62,100 increase in interest (2018-2019) is the amount of the 4th of July event that council was suggesting as a cut in the last few council meetings.

Here is the part of the letter that specifically calls out the above items.

The full audit will attempt to answer the following questions.

As residents of El Cerrito, we must remain vigilant in making sure that the city supports this audit and follows most, if not all, of the recommendations. Sadly, staff and council have a history of not acting in a fiscally responsible manner and the community has lost trust as a result of this. While they have made some recent efforts at transparency there have been no substantive cuts in the 2019/2020 budget and no hearings on how to manage the fire department in a manner that both protect public safety and is fiscally responsible.

We may all have different priorities for cuts to be made and services to be saved. It is important that each of us show up at meetings and email staff and council to hold them accountable. Two council members are up for reelection in 2020 and one seat is open with no incumbent running. We must challenge those running on what has been learned from the missteps made in the past years and how they will do things differently in the future.

El Cerrito Employee Compensation

I took a look at employee compensation for El Cerrito, Albany, and Richmond for 2017 and 2018. I got all information from Transparent California. 2019 data is not yet available.

I wanted to get a sense of how some of the city’s management staff salaries compared to a city much larger than ours and also one of similar size but with a smaller overall budget.

A few baseline facts to start

El Cerrito is a city that is 3.9 square miles with about 25k (as of the last census) people and has an annual budget of 52 million.

Richmond is a city that is 52.5 square miles with 104k people. The city’s annual budget is 176 million.

Albany is a city with 5.5 square miles of which 1.8 miles of land. Their population is about 20k people (this is more recent than 2010 census). Their budget is 25 million.

I picked some positions that seemed universal to many cities such as the city manager, public works director, finance director, etc. Some positions were different in different cities and that is generally noted on the spreadsheet and will be noted below also.

Both Richmond and Albany discussed their financial hardships within their budgets. Both had deficits to deal with.

Notes on positions

El Cerrito is the only one of the three cities to have a City Manager, Assistant City Manager, and an Assistant to the City Manager. Richmond, a much larger city, has just the executive assistant to the City Manger and Albany has an Assistant City Manager that is also a City Clerk.

Richmond has two Financial Managers but no Director like Albany and El Cerrito.

In several situations, a position was not filled for an entire year. This happened with the Finance Director for Albany and also for El Cerrito’s City Clerk. I have put the percentage increase in salary from 2017-2018. When 2019 data becomes available I will update then. You can see the entire pdf here.

Observations

  1. The City Manager of El Cerrito. is paid almost as much as the City Manager of the much larger city of Richmond. That position also increased almost 20% from 2017-2018. She also has both an Assistant and an Assistant to the City Manger which is not true of the other cities.
  2. Most of Richmond and Albany’s positions stayed fairly static in salary from 2017-2018 (the exception being the Community Development director and City Clerk of Richmond) while most of the El Cerrito positions received raises of 20% or more. These raises were given after the point that the auditor had raised concerns about the city’s ability to remain a going concern (which is accountant language for the city is at risk of bankruptcy).
  3. At this look it appears that El Cerrito is paying much higher salaries than Albany which is a fairly similarly sized city. Often times El Cerrito is almost paying as much in salary as Richmond which is a much bigger and more complicated city to manage.

Benefits

Below are links to each city’s benefits packages. The cities all have the premier Kaiser benefits as a part of Cal-PERS. Those benefits include no deductible and $10 doctor visits. These benefits cost slightly less than $800 a month for each employee plus an additional cost if they have dependents. El Cerrito pays the full benefit of the lower cost Kaiser plan and the employee pays only in if they choose the Sutter Plan. They pay the difference between that and the Kaiser plan, which is the same as Albany Employees. . Richmond employees pay in a flat $125 a month for their benefits.

El Cerrito Benefits

Richmond Benefits

Albany Benefits

City Tax Measures of El Cerrito

It is important for the residents of El Cerrito to understand all of the city based taxes we pay (well important to understand them all but I am focused on city taxes).

Measure R

Measure R-the first version was a sales tax increase of .5 cents for 7 years. It passed in November of 2010.

Per the city’s website ” In November 2014, El Cerrito voters approved the extension of Measure R at the one percent sales tax rate for twelve years to enable the City to maintain the current level of program and services offered. The new sales tax rate went into effect on April 1, 2015 and will sunset (end) on March 31, 2027. Read more about Measure R” There was some controversy at the time as to whether or not the city advertising on the issue brought up the idea that this was an additional .5 cent raise to the sales tax, not just an extension.

Ballopedia raised some issues on the original measure. The $21,717 that was raised to fund the tax was largely supported by unions representing city employees. The city spent $8,000 also to push the passage of the tax.

The full description of the Measure is

“To continue to protect/ maintain City services, including fire 
prevention/ emergency services; emergency response times; 
neighborhood police patrols; firefighter/ police staffing; crime 
prevention/ investigation resources; after-school programs; 
library hours/ programs; senior services; open space, parks, 
paths/ playfields; other general City services, shall El Cerrito 
extend the existing voter-approved sales tax and set the future
rate at one cent for 12 years, with citizens’ oversight, annual 
audits, and all funds staying local, none to Sacramento
.”

There was an East Bay Times article at the time criticizing the language of the measure.

Utility User Tax

Utility User Tax-this was reaffirmed in 2004 and is collected by the different utilities and remitted to El Cerrito on a monthly basis. It is an 8% tax on electricity, gas, water, video, and telephone, including wireless. The city’s information on it is found here.

Measure J Storm Drains

Measure J Storm Drain was based in March 1993. This was to issue bonds not to exceed 6.3 million to improve the storm drains in the city. The rate for a single resident home is $52. The most recent report on the city’s website is from 2015/2016.

Measure A-Swim Center

In March 2000 the voters passed Measure A fund the renovation and reconstruction of the Swim Center, the rehabilitation of Canyon Trail Clubhouse, and the performance of access and restroom renovations to the Harding, Huber, and Poinsett Park Clubhouses. This is for 58.46 per single family. The city’s information on this is found here. See also Measure H below.

Landscape and Lighting District

In 1988 the city passed a Lighting and Landscape District The city’s website states the following

“On June 6, 1988, the City Council established Assessment District No. 1988-1 pursuant to the Landscape and Lighting Act of 1972. The purpose of this Landscape and Lighting Assessment District (or “LLAD”) is to raise funds to support improvements and maintenance of the City’s park areas, landscaping areas, and street lighting. Every year since 1988, this Assessment District has generated approximately $771,000 to support LLAD activities.”

“In order to impose this annual assessment, the City Council must annually authorize an Engineer’s Report to identify the costs, uses, and general benefits of those parcels within the Assessment District. As detailed in the Engineer’s Report, the revenues are used for eligible activities including staff salaries and wages, streetlight maintenance, utility costs for the District, landscaping services, graffiti removal, and park maintenance.” 

The most recent engineers report found on the city website is from 2013/2014.

Measure H

This measure extends Measure A above, which was due to expire in June 2020. The current Measure has NO expiration date. While again the money is for Parks and Recreation only it does allow the money to also go for maintenance which was not something widely publized at the time. It did pass overwhelmingly as it needed a 2/3rds majority and it received over $78 yes votes. Here is the city’s page on this measure and also Ballotpedia’s page. At the time the East Bay Times came out strongly against the measure.

Measure A

This measure provided for a .5 cent sales tax increase to improve the roads When this measure was passed in 2008 El Cerrito had some of the worst roads in the state. The city’s website says this

“Prior to 2008, the City faced a backlog of street maintenance and repairs. The Measure A accelerated work plan was a multi-year , intensive pothole and street repair program designed to rapidly improve El Cerrito’s street system and to complete the repairs in the most efficient and quickest way possible. The Measure A accelerated work plan involved repairing or resurfacing at least 70% of local streets in El Cerrito within four years. The pavement resurfacing treatment (Asphalt Overlay or Inlay, Cape Seal or Slurry Seal) was chosen for each street based on pavement condition and economic factors.”

It does appear that this measure has been a success in improving roads.

City Council Meeting June 4, 2019-City Manager and Finance Director say it is all okay.

In November 2018, the independent auditor expressed the going concern statement for the second year in a row. It appears in the CAFR. In the June 4, 2019, meeting the city finance director expressed the view things were improving and the going concern statement would likely go away. This was backed up by Karen. When asked if he felt better, the finance director said something like  “considerably so”.

Below are more verbatim quotes take from the video. The video of that meeting is found here. The budget information starts at 2:59 in the video. The packet is found here. Pages 47-110 are very detailed budget documents. At the very end of the packet (no page numbers are available is Karen Pinkos’s presentation on the budget.

Karen started out with the presentation at around 2:59.

Karen: “We are being cautious and conservative”

3:10 Karen reiterated the effort of Mark and her to be conservative and not spend money that has not been received. “We are trying to be as prudent as possible”.

We are seeking to increase the fund balance reserve.

3:15 Karen: “I would like to thank all of our staff, especially the department directors for being fiscally responsible… I would like to give special thanks to Mark Rasiah.” He has been great in making sure that we have been keeping to our fiscal discipline…. We are wanting to make sure we are as fiscally prudent as possible.

3:22 Paul: “I am wanting to make sure you are liking the two year budget effort”
Karen: “Absolutely”

3:28 Mark Rasiah: “We have proved him wrong (independent auditor). So I think the going concern concept will be removed at the end of fiscal 19.

3:29 “So you feel better?” Mark: “Substantially so.”

3:30 Greg: “It’s nice to see you smiling because that means we should worry less.”

At the next meeting, the council raised the wages of management. Not until January 2020 did staff disclose to council and the public that there was a $2.9 million cost overrun and that the going concern statement appeared for a third year in a row.

The question then becomes whose responsibility is this. The council was being told that everything was okay in June 2019 and just four months later El Cerrito was named the #7 city at risk of bankruptcy in the state of California.

For reference here is a copy of the City Managers contract

She receives a base salary of $19,166.67 a month. She is eligible for whatever COLA un-represented employees make July of every year. If there was satisfactory performance the first pay period of January 2020 she was eligible for up to a 4% increase. The same for January 2021. The contract ends December 31, 2021. She receives the same employee benefits and makes the same contributions (amount not currently known) that all un-represented employees make. She gets vacation and sick time on the same basis. She also gets 75 hours a year of administrative leave. She receives $350 a month as a car allowance. The city pays for her travel and expenses doing professionally related things such as conferences. If she joins local clubs etc the city will pay the membership.

I was unable at the time of this writing to see the contract of the Finance Director. I will be making a public records request for that information. What I did find was this chart of employee salaries. The chart below shows a range of salaries for the Finance Director.

Update on Finance Diirector’s Salary 2/10/2020.

Here is the page that covers that.

Update on resources 2/8/2020

The city manager issued her new report found here. There is no new information on the financial crisis in it. There are links to past and future meetings. There are two firefighter jobs listed. They mentioned one was a replacement position. I wonder if either of those hires will reduce the $1.2 million in overtime we are paying for the fire department.

One of our community members managed to get the audio somewhat fixed on the City’s Town Hall meeting. Not perfect but better than what we got from the city. Thanks Mike.

The slides from that presentation are found here.

I am also adding the slides from Mark Rasiah (Finance Director) presentation here. The video can be found here. Click on the long-term plan study session to see the applicable video.

Here is some information from the 2019 Comprehensive Annual Budget Report (CAFR)

In November 2018 the independent auditor expressed the going concern statement for the second year in a row. It appears in the CAFR. In the June 4, 2019 meeting the city finance director expressed the view things were improving and the going concern statement would likely go away. this was backed up by Karen. When asked if he felt better, the finance director said something like  “considerably so”. At the next meeting, the council raised the wages of management. Not until January 2020 did staff disclose to council and the public that there was a $2.9 million cost overrun and that the going concern statement appeared for a third year in a row.

The video of that meeting is found here. The budget information starts at 2:59 in the video. The packet is found here. Pages 47-110 are very detailed budget documents. At the very end of the packet (no page numbers are available is Karen Pinkos’s presentation on the budget.

In addition, here is the information from the Standard and Poors report downgrading the city’s bond rating to BBB.

El Cerrito, CA COP Rating Lowered Two Notches To ‘BBB’ On Deteriorating Budgetary Flexibility

  • 26-Nov-2019 16:38 EST 

“The lowered rating reflects our view of the continued deterioration of the city’s already weakened budgetary flexibility, driven primarily by continued strain on the city’s revenue, rising fixed costs with projected pension pressures, and one-time costs associated with the state’s wildfires,” said S&P Global Ratings credit analyst Benjamin Geare.

El Cerrito, CA COP Rating Lowered Two Notches To ‘BBB’ On Deteriorating Budgetary Flexibility

  • 26-Nov-2019 16:38 EST 

“The lowered rating reflects our view of the continued deterioration of the city’s already weakened budgetary flexibility, driven primarily by continued strain on the city’s revenue, rising fixed costs with projected pension pressures, and one-time costs associated with the state’s wildfires,” said S&P Global Ratings credit analyst Benjamin Geare.

The negative outlook is supported by our expectation that there is at least a two-in-three chance that we could lower the rating within the one-year outlook horizon.”

City Council Meeting February 4, 2020

Last night there was a council meeting with the budget situation on the agenda. Here is the link to the video and packet.

Here are some observations from two of us who watched the meeting. It did appear to both of us that council is now taking this issue very very seriously which is a win for the community that have been pushing them to do so.

First off we were told that EC usually contracts with Pinole to stream video. The reason for the video fail on Saturday was staff tried to save money and do it themselves. The slides will be going up from the workshop on EC website soon. I will post them here when they are. They also say they will answer the written questions that were not answered on Saturday and post those.

Mark Rasiah the Finance Director had a powerpoint presentation. That powerpoint is found here.

They did budget projections out for 5 years. At this time the baseline estimates 581 k left 19/20 with a surplus also expected 20/21 and 21/22. The following years are all in the red. That is without any action by the council and also does not put anything into the reserve account.

There was a long discussion on Cal-Pers and how a drop in the discount rate would be devastating. Karen is going to a meeting soon and will hopefully know more about whether or not that will happen.

The finance director believes that if we had a 2 million reserve our bond rating would improve from the current terrible rating that doesn’t allow us to borrow money.

Rochelle said and Paul agreed that they did not know that the reserve was not being funded. Gabe also went on about this being hidden at a different point in the meeting. My question is who was suppose to be telling them this?

There are currently 184 positions in city. Mark stated every million dollars in cuts would equal about 10 position cuts.

There is a slide on some suggested potential cuts. See the slide below.

There was discussion on staffing and potential furloughs. Paul did reiterate that all things should be on the table.

Councilperson Quinto brought up high overtime rate for public safety. The budget for overtime (this is overtime we are paying not reimbursed is going to be about 1.2 million this year. He does not want want public safety funds cut. also brought up issue of firefighters doing vegetation management and that is important.

8 speakers spoke on this issue at almost 10pm! Yay for community involvement. Here are some of their thoughts.

Thanked council for the town hall meeting

No new taxes until fiscal responsibility

Consider layoffs

Need more transparency and leadership from council

Tough decisions need to be made

Support for not cutting public safety staff- this was a few people

A 10% reduction across the board

Consultants as a line item cut. why can’t staff do that work?

Parks and Rec potential cuts to anything not supported by its own funding this includes the senior center.

Charge for 911 calls via medical insurance

Create a community task force to work in economic development

We need to diversify tax base and look at expanding revenues

We need for oversight from council to staff

Don’t cut library hours or senior center

Back to the council speaking

The mayor asked the staff to come back with 2 million in cuts. Said they might not make them all but they wanted to see them.

Quinto talked about council doing stuff for economic development and things he has done. He would love to get a car dealership.

They talked about cancelling the 4th of July event. They start planning it now Councilperson Quinto was for Councilperson Pardue-Okimoto was against it. She talked about potential cuts like not having staff paid overtime at the events. and not having it for 2 days. She also said she would rather cut every other event than and keep this one. She wants staff to come back with numbers on all of them and entire council seemed to agree with that. Councilperson Fadelli and Mayor Lyman were open to letting 4th of July go. It was also suggested to maybe get some sponsorships.

Councilperson Quinto talked about bringing in non profits to support seniors rather than the city funding services. He says that is what SF does. He also was pretty angry about lack of economic development and said he had been working on the issue and not been supported by staff and that when he made contacts and they called the city calls were not returned.

A few other issues

Councilperson Quinto stated that the city would do whatever the state auditor recommended though there was not further discussion about this.

There was no talk of the unintended consequences of sharply cutting all of the amenities in the city. Will property values go down? Will businesses want to open up in such a downer environment?

There is a strong aversion to laying off staff and looking at any possible cuts in public safety both from public and council. There was no discussion on ways to perhaps cut the fat without cutting valued services.

The Mayor wants the agenda for next meeting to include possible cuts so that public is aware of them and can come speak out.

Council members challenged some of the Finance Directors assumptions, particularly around RFT and suggested being less optimistic.

This meeting was a study session and next meeting will be real talk of the cuts. People must show up! Everything is on the line here!

Some of Mark’s slides showing no reserve, revenue trends, and the current mid year adjustments to the budget.