Last week I wrote a post updating you all on the current status of the budget. I brought up some points that were reiterated in the 8/16/22 Council Meeting. The question I have is this 22/23 budget sustainable and are the forecasts accurate?

The first issue is the Transfer Tax. 

I brought that up in the last post but William Ktsanes, who is also Vice-Chair of the Financial Advisory Board (FAB), wrote a lengthy comment about his concerns about the Real Estate Transfer Tax that was submitted as a public comment.. (pgs. 10-14) His projected scenarios are 1 million less in income than the El Cerrito scenario. Now Mr. Ktsanes says he could be wrong, but on the other hand, he could be correct. If he is correct, that money will wipe out any surplus in the budget. 

The second issue is inconsistencies and confusion in the budget.

The budget also has $465K in one-time projects that were not included in the budget document. Yea as I type this I get that does not make sense. They have listed the projects, but they did not subtract them from the budget. If you remember from the last post, there was an 812K surplus (not the FAB recommended 1 million) and there is this 465 K in expenses which, if subtracted, bring the surplus to 347K. You may also remember FAB asked the council to put a million dollar surplus in last year. You can see below the surplus as amended was a little less than 600k. This is not the way to be building a reserve. The reserve is all there because of ARPA (bailout) money and a strong real estate market which meant lots of dollars for the real property transfer tax. 

The forecast document below also shows a concerningly low 3% inflation rate estimated. If there is anything we have all heard a ton about this year it is about how high the inflation rate currently is. According to the Bay Area CPI it is not 3% but is 6%. It should be forecast as such for this year with a higher than 3% rate again next year.

The third concern is pension costs

The pension issue is the worst of El Cerrito’s financial issues and the one they have not addressed at all. CalPERS suffered significant losses in FY 2022, which will not show up for another year in municipal budgets, but it is likely to sting. A change in the discount rate is also likely coming in another year or so. You can see how the unfunded liability costs have increased since last year. We can expect a bigger leap next year. 

Is this budget sustainable? I think this year we will be fine if only because of the second 3.1 million in bail-out funds. The city will probably contribute less to the reserve than estimated. I do think the future projections continue to minimize the increasing pension problem and we are in trouble next year 23/24. There still have not been the structural changes necessary to stabilize this house of cards.

Gosh has it been 10 months since the last post? Holy Moley does time fly? The author of this blog moved out of state and tried hard to move on with their life. But in the past few weeks, they got a few emails begging them to come out of retirement. Or at least focus back on El Cerrito finances. I have agreed to do so because this November El Cerrito has a competitive election for City Council! This is a huge opportunity to add fiscally inclined people to the council. Three people are running for 2 openings. We will cover the candidates and we are creating a list of questions to ask all the candidates as we have in the past. If you have suggestions email betterelcerrito@gmail.com.

So enough of all of that! Let’s get down to the business of updating you on the El Cerrito finance situation. Because if you are watching the City Council meetings you might think all is well. The Biden Bail-Out of 3+ million last year and again this year along with an INSANE real estate market has helped the city quite a bit. No more pay-day loans (TRANS) to keep the city afloat. The budget planning documents now include much more detail on the assumptions used. There is a new Finance Director. There is an actual 17% reserve. That is all huge progress. However, problems remain.

What are the issues that remain?

1. The City Bond rating continues to be BBB-. You can read my post when it dropped to that in September 2020. This low rating means borrowing is expensive or may not be able to happen. This potentially jeopardizes any Bond Measure. We expect that El Cerrito will push for a bond measure for a new library at some point. With this rating that is not possible. The rating is old so one wonders if the city has pursued getting re-evaluated at some point.
   
2. The outlook for Real Transfer Tax may be overly optimistic. They are assuming an 18% drop-off from FY 2022. The July data provided by the county indicated that July 2022 income was 36% below July 2021. If that happens there might be a $1 million shortfall. The Auditor called out not counting too much on such an unstable source of income.
   
3. Pension costs continue to rise with NO real plan in place to address them. The Staff continues to research a 115 Trust plan which allows them to put money aside for future pension costs but they still need the money to put aside.
   
4. There continues to be a serious lack of transparency in the budget process. This year’s budget was passed on June 21, 2022, by a 4-1 vote. (Motoyama voted NO). Much of the public comment was about that lack of engagement on the process with the public. Councilperson Rudnick acknowledged in her comments that the process was not inclusive of the public. Councilperson Motoyama tried to get the budget continued to the next meeting but that failed by a 3-2 vote. (Rudnick voted Yes).
   
5. The City Council continues to not effectively utilize the Financial Advisory Board (FAB). When they do make recommendations to Council they have not been listened to. For example, FAB has been recommending a budget surplus of 1 million in every proposed budget. This year’s DRAFT budget has an 812K surplus (because 812k and 1 million are the same). The budget does not include some items such as the wage and compensation study which if included would lower the surplus by 465k. Dick Patterson, The Chair of FAB, (at the time of the meeting) spoke at the Council meeting June 21, 2022 and spoke to this and other concerns FAB had about the budget. (he starts speaking at 1:44)
   
6. Complacency has returned. The City Council engaged once the financial crisis hit the news. They made some demands for information. They have been getting monthly financial reports for the past few years. Which allowed the public to closely watch also. Now it has been decided that quarterly reports are enough. Why has the Council not demanded continued monthly reports? Quarterly is not enough to catch things, especially with the slow pace for action in the city. The public also deserves to keep a close eye on the budget given that El Cerrito still shows as #6 on the High Risk City List. (We do not know when rankings will be updated. The State Auditor did not respond to the El Cerrito March 2022 update)

We’re back and we hope you will be back also. Engage with the council. Pay attention. And stay tuned here!

This is the final part of a three-part series updating residents on activities related to the El Cerrito fiscal crisis. This is the final part of a three-part series updating residents on activities related to the El Cerrito fiscal crisis. In other big news, the Finance Director has resigned and has left the building. While a new Finance Director with more forecasting experience and experience in addressing fiscal issues could be a great thing for this city we also understand the City Manager makes this hiring decision. This City Manager has been historically non-transparent and not super willing to acknowledge past mistakes or shift the trajectory. This could be an opportunity for her to hire someone who can turn this ship around and make the tough decisions. Or she could hire someone that continues to deny issues and have fights with members of the FAB when they challenge their untruths. I hope Council encourages her to hire wisely.

The response to the State Audit also reported that “the incumbent Finance Supervisor will be retired as of September 30, and the position is proposed to be replaced by a Budget Manager position that will specifically focus on budgeting and financial analysis for the City, allowing City Management to be responsive to the City Council and the public in communicating budget strategies and information. This classification is being developed and is expected to be presented to the City Council for approval in October, and staff will seek to fill this position by the end of the calendar year.”

If we fill both of those positions with these new skill sets it could be transformative for the city. The lack of forecasting has been a great disservice to the city. As of the date of this report, I do not believe this position has yet been presented to the Council. These positions need to both be filled ASAP as the City now does not have a functioning Finance Department. I know an interim Director was going to be put in place soon. The Community needs to stay on this issue as it could be used as an excuse not to produce promised information and reports.

To end this series here are a few things to keep an eye on. 

1. Does the City Council get regular budget reports? When the Ad-Hoc Committee reported back they detailed what they wanted to see in reports and stated that these would start in November. Given the Finance Director has left I anticipate the City Manager using that as an excuse to not have a comprehensive report. They have already used that as a reason to cancel the Financial Advisory Board meetings. 
2. Will they fill the open Financial Advisory Board seat? It seems rather convenient that they decided to reassess the Board and Commission rules right at the time the FAB had an opening. Then they added criteria that applicants need to have attended some meetings. At the last council meeting, they said it might be February before the seat was filled. 
3. Will the Council push the City Manager to hire a competent and experienced Finance Director who has the skill set to do accurate forecasting and present information to the community in a comprehensible manner? 
4. Will the Council assign a team to do the City Manager’s evaluation that evaluates her performance and brings in the factors of community trust and how she is working on the budget?

As I have said before change will only happen if the community continues to hold the Council responsible for the fiscal state of the city finances

This is part two of three of the Fall update on what has been happening with the city budget. Today we cover the Ad-Hoc Committee report which includes the report sent to the State Auditor (click the link below)

City Council Financial Ad-Hoc Committee Update– Presented by Council Person Rudnick and Motoyama at the Meeting on September 21, 2021. There was an Ad-Hoc Committee formed with these two councilpersons working with city staff on preparing the response to the State Auditor Report. Councilperson Rudnick spoke some about their process and meetings and then Councilperson Motoyama stated that they had provided direction on budget updates moving forward. Updates should include actionable information, be provided quarterly to get fuller pictures, and have 5 and 10-year forecasts, and break down the budget department by department.

During the meeting, Mayor Fadelli asked will we get a response back? Karen Pinkos said yes that is anticipated. She stated that they are still working on the Fiscal Sustainability Plan which the council will need to approve. She believes they will be removed from the list.

As of the date of this blog post, the State Auditor has made no public online response to the response sent last month. I think it is highly unlikely we would be removed from the list as if you look at the high-risk dashboard above we have addressed only Fund Balance. We now have a few million dollar reserve. There has been no action on any of the pension issues. In fact in that area of the report, it says

“The City Council has directed City staff to establish a Section 115 Trust. Staff is now researching vendors and a recommended funding policy for the City Council’s consideration. Financial policies are also slated to be discussed by the City’s Financial Advisory Board in the coming months.

The action once again is research. They have been cancelling FAB meetings due to staffing issues (covered tomorrow) and are delaying the filling of the open position on FAB.

Frankly, I found a few other responses in that report less than satisfactory. On page 2 they mention there will be a 4 million dollar reserve meeting our 10% goal. This is disingenuous because looking at the true policies we are also required to have an additional emergency reserve and the recommended reserve for a city our size is 17 million. That number was referenced in part one of this article which covered the Fiscal Sustainability Plan.

It is important that the community continue to follow these reports and if the state auditor posts responses to them.

It has been a long time since I posted. This writer is going to be leaving El Cerrito and it has been hard to motivate myself to continue with the blog. This blog has filled a void by informing residents about the Fiscal Crisis and I feel sad that it may not continue. There is a committed group of residents that have been working behind the scenes for a few years. Please if you care about the city email me at eccfrg@gmail.com and I can get you connected. The group can use people who can do some report backs from the Financial Advisory Board (FAB) and Council Meetings. They can use some people to help get the word out via this blog and social media. If others don’t step up all the work thus far may have been for naught.

I am ending with a three-part update. This can catch people up as to what has been happening or not around fiscal sustainability in El Cerrito. I will post one post each day for the next three days.

Study Session – Fiscal Recovery and Sustainability Plan-Last Meeting on August 31, 2021. 

I will admit I did not attend this meeting. I was so frustrated about the lack of publicity for it and the scheduling at 4 pm on a workday that I thought it a waste of time. Today I reviewed the slide set and saw that the Plan had made some major improvements since the first meeting.

The first thing to be very clear about is that the only reason El Cerrito is doing okay right now is the American Rescue Plan Act (ARPA) funds. Without those funds, our situation would continue to be dire. With those funds, we could be on the path for change IF pension issues are addressed in a meaningful manner.

A few highlights from the report:

This first slide is an accurate statement as to what is needed on the road to sustainability. I am especially pleased that strengthen transparency and community trust is called out. This is something I have been begging for. They also call out monitoring key financial drivers including PERS (pension plan) which is something that has been missing and is a significant piece of the future. The pension issue could bankrupt the city if not addressed.

Below they also state their key assumptions. This is something that we have long asked the Finance Director to do. The two assumptions I am concerned about are the flexible COLA assumption since the represented employees have been reluctant to give back anything. Any COLAS not taken these last few years were deferred and I believe in 2022 they will get COLAS again. It also assumes no recession through FY 32-33 which seems rather improbable. That being said I understand that it would be hard to predict what the next recession will look like. I also hope the Cannabis revenues are not overstated. They are anticipating 300k a year from each of the two of them. One is not open yet.

The next few slides show how bad shape we would be in without the Rescue Funds. This proves my point of how that money is saving this city. It does have us obtaining a real reserve quickly. Which is great. My concern is that this report and the City as a whole are not addressing the Pension Issue which I suspect could change everything. I hope before the Council approves this document they ask for some data on that issue.

This document is a reasonable start. Before it is approved I suggest the Council ask for more data on how the pension costs factor into each of these scenarios. It appears to be a huge missing piece. I also hope that the Council uses this document to hold the City Manager accountable. She has been historically anti-transparency. Transparency is the only thing that might build community trust again. I hope the Council holds her to it. I believe based on last year her evaluation is coming up in December or January. I hope the Committee assigned to do it includes one or both of the Council Ad-Hoc Committee members as they seem to best understand how the City Manager is navigating the budget. While the public is not permitted to see this document I hope it is an honest reflection of her work. I also hope it sets some quantifiable goals for her progress.

There was a council meeting last night. The finance reports were buried until the end as per usual. The good news is we ended the year with 1.3 million on the books. Some will say we had a surplus of over 2 million but over one million of that had to be written off due to losing a lawsuit. The actual fund balance number is the one that counts and that is 1.3 million. The Council congratulated themselves and the staff.

The transfer tax received was OVER estimates by 1.7 million. The entire surplus was created by an unsustainably strong housing market. If that had not happened we would have been in the red once again. But yes let’s congratulate the staff on that.

The state auditor updated their dashboard. El Cerrito remains the #6 worst city in the state financially but our overall points declined from 36.32 to 35.76 out of 100. 

If you dig deeper into the El Cerrito numbers you will see nothing positive and the pension issues are horrific. We are the worst city in the state for future pension costs.

If you look at the required contributions (above) for 27/28 versus the budget you will see that 20% of the budget would be utilized for that.

If you compare the prior year to this year you will see

2020 Actuarially Determined Pension Contributions $7,194,477

2019 Actuarially Determined Pension Contributions $6,351,717

2020 Accrued Pension Liabilities $214,921,896

2019 Accrued Pension Liabilities $203,153,960

El Cerrito does not acknowledge the fiscal trouble we are still in. Instead the public got to listen to another diatribe from Council Person Quinto who said that those not supportive of the route the city is taking are liars, mean-spirited and partisan. (at 3:56 in the meeting video). He focused on staff costs and insists they are not to high and the public needs to look at Betty Yee’s website for proof. Regardless of whether the city staff is overpaid or not the city is still in terrible financial shape and Council Person Quinto and the Finance Director instead of addressing this use every opportunity to portray those disagreeing as horrible people. It is tone policing at its finest. Say something critical about the Council or Staff and be told you are making personal attacks.

I ask Council Person Quinto if we are liars why do the State Auditor’s reports bear us out?

I ask the other Council Members why they continue to allow Quinto’s attacks to go without comment? He gets to say whatever he wants as his free speech right but is attacking the public the route to take? Silence implies agreement.

Council Person Motoyama joined in the praise but also said there needed to be sustainable changes and we needed to see the 5-10 year projections. Remember the last attempt at that? I do. It showed us with no adequate reserve quickly. Make no mistake without the federal bailout we would be in grave danger right now.

Next week will be another performative meeting where Management Partners makes the suggestions they are told to make by city management. It is a follow-up to the town hall a few months back. It is August 31st at 4 pm. Seems to me not a great time to be accessible to the working public.

Just a reminder 2022 is coming fast. Two seats will be up for election then. That includes Council Person Quinto’s seat. That man who calls the public liars. This is our opportunity to change the membership of the council to gain a third vote for fiscal responsibility. If you are thinking of running I encourage you to do so!