When a city goes bankrupt:Vallejo case study

Businessman falls on a negative statistic. Concept of crisis and problem

This blog post is from a guest poster Sherry D. I did give some input into the post. 

When a city goes bankrupt: Vallejo case study

El Cerrito is struggling with budget deficits and sluggish revenues and risks bankruptcy unless the council takes decisive action. Bankruptcy is a means by which businesses restructure their organization to pay-off debt. So what happens?  

In a 2012 interview with Phil Batchelor, Vallejo City Manager at that time, he described the 2008 implosion of the city budget and subsequent outcomes. 

I encourage people to listen to the 16-minute segment and review the summary below.

How did Vallejo get into the situation?

Vallejo declared bankruptcy in 2008 when cities across the nation were hurting due to the economic crash at that time. But the problem in Vallejo can be traced back a decade.

  • The unemployment rate was soaring up to 15%. Businesses were having a hard time. High unemployment reduced the value of the housing stock. 
  • The state abolished the Redevelopment Agencies, taking back money. 
  • The City Council abdicated responsibility. They set salary formulas based on what other cities paid, not what they could afford, and entered into long-term contracts and MOU’s with employees. 
  •  Negotiations were not based on trust and no one wanted to say NO. Neither the politicians nor the Unions. The pension costs were not sustainable. 

What happened when the City declared bankruptcy?

When you declare bankruptcy you don’t get a free pass. You are obligated to balance the budget, pay legal bills, and address pensions. You also have to pay off bonds. 

Bankruptcy forces all parties to the table including employees and retirees.  

Bankruptcy brings a third party to preside over the negotiations – a judge.   

In the case of Vallejo, declaring bankruptcy resulted in the following changes: 

  • Closed 3 out of 8 fire stations
  • Cut fire staffing by 42 percent
  • Police reduced from 155 down to 90 officers which was a 47 percent cut. Police still had to provide service. but they have fewer assets to do it with
  • Maintenance was deferred. This results in roads and equipment deteriorating. 
  • Current employees face salary cuts, lay-offs, and find themselves having to do more work with less pay. Morale suffers. 

How did Vallejo Recover?

After a few years, with the addition of a new City Council and City Manager, the government gained the confidence of the residents. The officials earned the trust of the residents and were able to pass a tax measure. They raised 10 million dollars a year for 10 years and then restored some of the public safety personnel. Although the city of Vallejo is now facing revenue loss due to COVID, they were able to build a reserve budget to address the present crisis. 

Similarities between Vallejo and El Cerrito

  • Both have a City Manager form of government and 5 council members (Vallejo also has a Mayor and Vice-Mayor)
  • Both abdicated responsibility for a decade. In 2008 El Cerrito didn’t make the necessary cuts and used up the reserve that we need today. 
  • Both cities repeatedly overestimated revenues for consecutive years, with little scrutiny about budget assumptions. 
  • Both have high pensions costs that are not sustainable
  • Both have strong Fire and Police Unions. Even with the City on the brink of insolvency, the El Cerrito Police Union is scheduled to receive a COLA on January 1, 2021

No one would argue that bankruptcy caused a lot of harm in Vallejo. And while they left bankruptcy court a few years later they are again going to have to make some serious spending decisions. Paraphrasing the Vallejo City Manager from the narrative of the FY2020-21 adopted budget, the future does not look rosy due to pension and healthcare costs. Without addressing this issue, Vallejo may slip back after much hard fiscal restraint. 

So what does El Cerrito need to do to avoid bankruptcy? The State Auditor just issued their report on West Covina. Their criticisms of that city parallel many of our criticisms.

  1. Budgets need to be balanced and need to end with a positive balance. The last budget ended at an estimated 2 million dollar deficit. That is not a balanced budget.
  2. Public safety is half the city’s budget and those contracts need to be renegotiated by someone who is not their boss or friend. 
  3. We need long-term fiscal planning. There should be an active 5-year budget.
  4. We need to not get a loan every year to survive and paying that loan off needs to be a priority.
  5. We need to generate real Economic Development to create a tax base to establish a substantial reserve. If we had a reserve we wouldn’t need the loan. 
  6. We need a staff person capable of accurate fiscal forecasting. Someone who can articulate what assumptions were made and why they were made. Someone who can be nimble in responding to the many changes in the economy that are occurring. 
  7. We need a city manager that can remain impartial and negotiate contracts that may not be popular but be fiscally prudent.

If the City Council does not have the political will to face-off with the City Manager and the Public Safety Unions, we may find ourselves in court. With a decade of neglectful watch over the budget, successive City Managers who have been more inclined to seek out new taxes, take home relatively high compensation, and add new positions while reserves shrunk, someone, needs to be the “adult in the room”.

Moving forward, how will the city keep us from insolvency? Will the city staff provide accurate projections for budget planning? Will the City Council members question and act on faulty assertions? As residents, we can hold our City Council officials accountable. Will City Council members hold the City Manager accountable. Will residents hold the city council accountable? We have two new City Council members but three existing members who have been on the Council for many years. Can they change direction? Can they see the structural issues that make this budget unsustainable for the long-term and make decisions today that will help us in the future? Will they make decisions for the short-term that will doom us now and in the future? We don’t have to abdicate our responsibility. We need to stay on top of the meeting agendas, follow the Financial Advisory Board, be ready to ask questions, make comments, and share information with other residents. We vote in our Council members and we can vote them out.  

What could a transparent El Cerrito look like?

It is a new year and we have a new city council. Paul Fadelli is our new Mayor. Council-People Lisa Motoyama and Tessa Rudnick have been sworn in replacing Greg Lyman and Rochelle-Pardue-Okimoto. Janet Abelson and Gabe Quinto remain on the council and will be up for election in 2022.

I have been highly critical of the council and what I have seen as their inaction as the financial crisis has worsened. I do want to allow the new Mayor and council members an opportunity to do things differently. Tessa Rudnick both Zoom met with representatives from this group and answered our questions. Lisa Motoyama never responded to either request. We hope as a councilperson she decides to represent all of the residents, including the ones who differ in opinion from her. Mayor (then Councilperson Fadelli) has always been fairly accessible though many of us have been disappointed that he has not pushed more on the issues. He has had only one meeting as Mayor and part of what he is implementing is more involvement from the Financial Advisory Board (FAB) which is a great development. The people on FAB are finance experts and they should be utilized as a resource, not as a rubber stamp. I attended and wrote about the last FAB meeting and it was a good opportunity to be heard in public comment and to also have some things explained. I will be adding the FAB meetings to the take action page and hope others attend. As of now, there is an opening on FAB so I encourage people to apply for that position.

What I would like most to see with the new council is a shift in the dynamic between staff/council and the community. While some attempts were made to improve this (Town Meeting Feb 2020) for the most part those of us who have been actively following and advocating on the financial issues have been ignored or told we don’t know anything. It has been exceedingly difficult to get accurate data from the city. Often we are told to dig through hundreds of pages of documents. That is not transparency. Some simple things that could happen to shift this.

  1. Give us the dedicated budget page we were promised at the Town Hall meeting. Albany is a great example. They have the information easily accessible on their website AND they do quarterly breakdowns and detailed reports. Now right now the council has been getting a monthly report (even better) but those need to be posted on the website on their own and not as part of a 200-page packet. Some of this is now being posted on the FAB page but it should all be on one designated budget page. This is just a matter of uploading the monthly reports and is a simple task.
  2. The City Manager’s reports need to have information on economic development and the budget crisis. She writes a very thorough report accented all that is good in EC which is great but the public needs to know the crisis also. Many in El Cerrito still are not aware that we are on the brink of bankruptcy. We have no real local newspaper so the information gets out there only through places like this or Next Door or Facebook. We need the city to be accountable to be reporting on the crisis. We need all the residents to understand what the stakes are here. And once shelter in place is lifted there needs to be another Town Hall meeting where it is not just a show run by the Mayor but the interactive Town Hall we asked for the first time.
  3. I would encourage the Mayor to also create a monthly report or have a written report from the council. Or start having some online Town Hall meetings. I have, in the past, found council members open to a coffee meeting but since that is not plausible we need other ways for the community to interact with the council. 
  4. There needs to be a public process when the state auditor report comes out. This is now shown with a March 2021 estimated completion date. Based on the report I read from Compton (who were ranked slightly better than us) I expect a scathing report. In the past, when the state auditor brought up concerns there appeared to be a lot of minimizing or saying things were not as bad as the state said. I know we cannot go back in time and undo mistakes but I would love to see the city say mistakes were made and have a written plan to make sure such mistakes never happen again. There again should be a Town Hall (online if needed) to discuss the report. 
  5. There needs to be a 5 year budget available on the same page as mentioned above. This needs to be updated (the longer-term years) at least twice a year. 
  6. There needs to be a written plan as to how the city can pay off our 8.5 million dollar loan. We are not building any reserve until that is paid off. How long will it take? If we end the year at the number projected (which I doubt) we would have a 600k surplus. So if we are paying off the TRAN at that rate it would take 16 years to get rid of it. 
  7. There needs to be greater transparency on city salaries. Transparent CA is a great resource for looking at salaries and comparing them to other cities. However, what we have seen is that city staff are always saying they are underpaid or paid at the median. However, there has never been information shared on what cities they compare to. What we suspect is that they throw the entire county in there so it includes much larger cities like Richmond and much richer ones like Walnut Creek. I believe in reasonable compensation for staff but it needs to be centered on the reality of our financial crisis and the size and resources of our city.
  8. On the budget page we also should be able to see our city’s current bond rating. This is something that has dropped in the last few years and we are now at a huge disadvantage as far as being able to borrow money as a city. Either it will cost more or it will not happen as we are considered high-risk.

I found this report online. This talks about what transparency in a city looks like. Our neighbor San Francisco is doing an excellent job. Here are three guidelines for Transparency 2.0. You can see how our city is under the first category for most things and not the second. I understand many of these changes could take a while to make since it appears the city’s website is antiquated and would need work. However, if the city started with the basics as discussed above it would go a long way.

As many of us have seen with the Federal Government a lack of transparency leads to residents not trusting the government. I know many of my fellow advocates don’t trust our local government at all due to these issues. I hope the new Mayor and council will take steps to right the ship and change the embedded culture of we know all and the residents do not understand things.

Financial Advisory Board Meeting 12/8/2020

This are the questions I had coming into this meeting,

The comments are based on both on the November cash flow and the reports available for Aug/Sept/Oct


I am deeply concerned about the revenue for other services and the ever-deepening gap. We will be under restrictions at a minimum through the first quarter of next year. Why was this not caught sooner? It appears to me that it has worsened another 200k in the last month while the action was not taken.


  1. What made November’s sales tax so high?
  2. Why was there a large number on the Financing costs line this month that had not been there before? Shouldn’t finance costs be predictable?
  3. Why is payroll being predicted at 2242 when the actuals have been 2593, 2462, 2389 all of which are higher?
  4. Do the payroll predictions for Jan include the police cola that as of now is issued beginning of January?
  5. Will there be payouts of any type for the two retired police and one retired fire person? I know often they get paid out accrued vacation etc.
  6. Does FAB think the ending balance is ok given the Tran payment that will have to come out of it?
  7. What is the line for transfers out and why is there now a number in it?
  8. Can FAB ask the Finance Director for written assumptions for predictions?
  9. Are the sales tax predictions accurate since we have not met them except for this month (and we did exceed them this month)?
  10. The starting number in August project was 8471 and then it went to 9278. Can it be explained as to why that happened?

There are two new members William Ktsanes and Debra Saunders. Debra attended as a member of the public since her employer had not yet approved her membership.

Mayor Pro-Tem Fadelli attended the meeting which was appreciated. He stated that he wants more feedback from FAB to the council. Dick Patterson, the chair, stated they would be happy to take more direction from the council.

The Finance Director reviewed the reports found here

Utility Taxes are a guesstimate per Mark. He has looked at the past three years in making this guesstimate.

The transfer tax predictions seem to have been done conservatively, which is good. This is also one month behind. This line item has been doing very well.

Regarding recreation, most of the money earned is made in the few months before summer and then that flattens. The Recreation Director will be making a presentation to Council next week in regards to this. Typically they bring in 5-6 million a year in revenue. The line item for Fees for Services are not just for Recreation but also for Community Development.

Sales Taxes– The state has allowed some businesses to delay paying the taxes so the payments have been delayed. The large number in November indicated some of these late taxes catching up. These sales taxes are often two months behind this year. The Finance Director subtracted 10% from the projections. The County pool (which collects sales on online items) has increased by 30% which has mitigated some of the damage in regards to sales tax. This is a change due to a Supreme Court decision (Wayfair) which allows us to collect online sales taxes for out of state purchases. This is a change for this fiscal year.

Personnel line-This includes payroll, benefits, workers comp insurance payments, payments when someone left. One of the issues with the personnel is that the State Fire Department owes the city over 800K in reimbursement. This should be made in Spring and it has inflated the payroll numbers as the city has to pay the firefighters and then later get reimbursed. The Finance Director stated that any COLA’s are in the budget.

Regarding the starting number for July Mark said it is not finalized yet and will not be until the CAFR is done. He thinks it might even improve due to late monies coming in this year that will be credited to last year.

Debra Saunders asked questions about the pension liability. Mark referred her to a 5 year plan. I created a pdf of that section of the February 2, 2020 meeting.

For the next agenda there will be a deeper dive into the finances and Debra also really pushed for a new look at the 5 year plan.

10 Things you should know about El Cerrito’s financial crisis

Many more people have been engaging in dialogue around the state of El Cerrito’s finances. People want to know how we got here. Here are some essential facts you may not know.

  1. 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.
  2. In June 2019 the city manager and finance director told council everything was okay. Things were not okay even before COVID. City staff had also 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.
  3. El Cerrito has no reserves and has been making no effort to fill their reserves. Council was told that the Transfer tax would build reserves but instead much of it was used to pay firefighter overtime. 
  4. El Cerrito borrows money every year to keep afloat. The most thus far was two years ago when they borrowed 9 million which was up from 6 million the year before. We borrowed 8.5 million this year and it cost over 100k to do so because of our high risk.
  5. The State Auditor currently has the city at #6 in the state as most likely to go bankrupt. This is up from #7 last year. 
  6. The State Auditor is currently auditing the city. The audit results are due in February. 
  7. Until early in 2020 each of 26 management employees was receiving a $300 a month car allowance ($330 to the city manager) regardless of whether their job required travel or if they had access to a city car. No paperwork was needed. This cost $100,000 a year.
  8. Our current bond rating is one step above junk bond. This means our ability to borrow for anything is greatly impaired and if we do get a loan it will cost much more.
  9. 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.
  10. The city’s taxable sales fell by 5% from 2009 to 2018, while those in 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. We have no economic development team or plan.


City Council wants to quickly extend the City Managers Contract by two years

So the City Council, which has been unable to move quickly on an financial issue, is moving rapidly to extend the City Managers contract until December of 2023. Her current contract expires December 2021.

The negotiators Councilperson Quinto and Mayor Lyman have not asked the City Manager to make any real concessions as the city falls into bankruptcy. Her contract is revised to keep her increased contribution of 3% to Cal-Pers which was implemented this year. It continues to not offer the car allowance, which is something that Councilperson Fadelli has stated numerous times he would fight ever returning. It does not give her a COLA UNLESS other non-represented management staff receive a COLA. It does roll back the 3% COLA she got in 2019 when the city was already in financial dire straits.

So the only real concession here is that she has a salary reduction of 3% (the rollback of the 2019 COLA). The council meeting packet (page 114) states that she would be in the bottom quartile of Contra Costa City Manager salaries. Which sounds good until you realize that they use every city to compare rather than equivalentLy sized ones. Her base salary will be 230K a year after the reduction.

If we look at cities close by that are similarly size (20-30K populations) and using 2018 figures you will see the following

Albany-Population 19,696-City Manager salary $160,236

Hercules-Population 26,276-City Manager $220,000

Orinda-Population 19,926-City Manager Salary $210,095

Pinole-population-19,250-City Manager salary $219,910

Lafayette-Population 26,638-City Manager $247,000

San Pablo-Population 30,990-City Manager Salary $244,391

If you take the average salary of those cities you get $216,939.

I question the rapidity of this contract. The City Manager was asked at the last meeting to bring back recommendations for cuts to the Recreation Department with council members stressing the need to act quickly. Are there any recommendations in this packet? No there are not. In fact, there is no financial update on the agenda at all this meeting.

We also have two new council members being sworn in during January. Should they not get an opportunity to vote on this contract since they are going to have to be part of the fiscal management of this city? This contract that was negotiated in part by Mayor Lyman who is not going to be on the council after January.

I would love to see this contract negotiated with the reality of a nearly bankrupt city which means some real concessions. If other employees are going to be hurt by upcoming financial cuts the City Manager should also take a salary hit. She has been in the City Management for many years and has been part of the culture that has created this mess. The Recreation Department cuts that are likely to happen may very well impact the most vulnerable of our city’s residents including our seniors. If we are going to cut senior services should not the City Managers salary also be cut? How many senior meals would be paid for if her salary was cut to the average City Manager salary of $216,000? Instead they are keeping those items separate and renewing her contract quickly while delaying Recreation cuts. There are also no consequences in the contract if the city goes bankrupt. Should that not be reason for dismissal?

I think residents deserve to see the results of the city’s independent audit and the results of the State Audit before we renew the contact of our city manager. The CAFR is due out in January and the state auditor’s report is tentatively coming April/May.

If you would like to make a public comment on this for the December 1, 2020 meeting it is agenda item 7B. Send public comment to cityclerk@ci.el-cerrito.ca.us. If there is no public feedback on this item it will be passed probably 5-0 without questions even asked. Continue to challenge our council to do better. This contract needs more negotiation and needs to be not finalize until at minimum the new council gets sworn in, the cuts to the Recreation Department are decided finalize, and the new independent audit is released. Why not wait until at least February for all of those things?

Do Nothing City Council continues to do nothing even as the State moves El Cerrito to #6 on the state high risk list

Do Something Vs Nothing Two Way Road Signs Take Action 3d Illustration

Today the State Auditor released their annual list of cities at high risk of financial difficulties. This list is based on FY 18/19 figures which was a better year for many municipalities. However, El Cerrito dropped from #7 to #6 largely based on lack of reserves (El Cerrito not only has no reserve but owes an 8.5 million dollar loan due at the end of the fiscal year.

At the meeting on November 17, 2020, the City Council again DID NOTHING!!! Okay, Councilperson Fadelli did say that he hoped the restructuring of the police saved money. City Council did direct the City Manager to come back with more information on what Rec programs are no longer supporting themselves and what cuts are suggested. However, they did not pin the timing of that recommendation down. Both Councilpersons Fadelli and Pardue-Okimoto did say that they believed it should be ASAP and the Mayor stated the cuts should be done before the third quarter as the city manager had suggested in the recommendations with the fiscal report.

Councilperson Rochelle Pardue-Okimoto brought up the issue of the projections for sales tax and why the estimate was what it was. (see this blog post for issues with projections) She asked to compare the current sales tax with the beginning of the shut down in March. The Finance Director gave another hard to understand answer (2:49 in the video). He did say that El Cerrito gets some sales tax revenue as part of a county pool for taxes paid for online purchases which has mitigated some of the other sales tax revenue decreases. The Finance Director insists his figures are good. He also said that Honda of El Cerrito sales tax is down 49%. That is a huge financial loss of revenue for the city.

Councilperson Pardue-Okimoto also asked about Franchise Taxes. The Finance Director said it is the lowest in 4 years but he still wants to watch it until the end of the year. Because why act now! (okay I added that last part). She also questioned the business tax numbers and reflected on how that might affect sales taxes.

Councilperson Fadelli did ask about when actions would be taken. The City Manager then said any reductions would be staff reductions and thusly service reductions. She said that they have been in negotiations with unions which is necessary for staff layoffs or salary cuts. She also said she wanted to wait until the end of December. Both to have more information on city finances and because she did not want to do layoffs before the holidays. Councilperson Fadelli also asked about staff revenue projections (Thank you!) and brought up the issues raised in our last blog post. The City Manager was very dismissive of those numbers and stated no one knows how people are doing projections. I would like to very clearly state that those numbers were BASED ON ACTUAL NUMBERS for the first 4 months of the year rather than the Finance Director’s fantasies. I hope that next meeting the council members push further and specifically ask “Why are the payroll numbers being projected for the rest of the fiscal year at 200k a month less than what the actual costs have been for the first 4 months of the year.” If you send a comment to the council or a council member please ask that question. If you get an answer forward it to me at eccrfg@mgail.com.

The Finance Director dug in on his projections and the council seems unwilling or unable to really challenge him. Councilperson Pardue-Okimoto did say that his idea that things would be better in 3-6 months may not be realistic due to many reasons. (Remember she is a nurse). The vaccine could take a long time for distribution, many people will not get the vaccine, and many people have made lifestyle changes such as a parent leaving work to take care of children that means they will need recreation services less.

Everyone needs to be warned because of the slowness of staff and council to respond (was I the only one who predicted a Rec financial issue at the beginning of COVID?) the next round of cuts is going to hurt. Popular recreation programs will be cut. Beloved staff will be laid off. This is going to be painful. People are going to suffer from either losing their job or losing a needed services. And also know that if we had run a more economically efficient city and had an actual reserve this would not have been as bad as it is going to be. If staff and council had taken it seriously when the auditor first brought up that the city might not be able to continue as a going concern this would not have been so bad. No one could have predicted a pandemic but we could have had reserves.

The City Council and staff and the community are also going to have to recognize that Public Safety (Fire and Police) are over half the budget and that if we are going to dig out of this some cuts need to happen there. The county grand jury reported on police staffing in the county this year and found that El Cerrito had the second-highest ratio of police officers per 1,000 residents at 1.8 with (San Pablo was #1). The state average is 1.48 and the county average is 1.09.

Our Fire Department had 4 Battalion Chiefs to Albany’s 0 and is known to be top-heavy. (At this meeting one Battalion Chief retired-can we replace that position with an firefighter rather than a manager?) Almost no one wants to cut fire services in our city but surely there is a way to level down management and run more efficiently.

Links to articles are below as are the email addresses of our current council members.

San Francisco Chronicle article on state risk

State Auditor dashboard

El Cerrito Council Meeting November 17, 20202 video

Emails of the City Manager and City Council Members

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

Photo Copyright: iqoncep

El Cerrito is in big trouble and the Finance Director continues to project we are okay

Things you should know about the budget before the next City Council meeting on November 17. 2020. The packet is found here.

1. Charges for Services (mostly Rec Dept) are now estimated to end the FY 600k in the hole. Staff has slightly woken up and decided to maybe do cuts in the third quarter though whether or not the 5 staff positions are all from Recreation has not been stated. Making cuts with half the year completed means the cuts that are made will be more severe than if the Staff and City Council had made them in the first half of the year. I am not a financial analyst but I could have told staff that the Rec Department was going to struggle this year. 

2. The Transfer Tax has been saving El Cerrito. It is currently trending at 325k a month versus a projection of 200k so that is positive and that has been mitigating the damage from the Rec Department losses. We have no idea if this trend will continue into winter. It seems likely not to as most people hold sales off for a few months during this time of the year. 

3. Revenue predictions continue to be unrealistic especially with the Sales Tax. The actual number received for August was 585K for September it was 556k and for October it was 554K. So what are the predictions for each month the rest of the FY? The projections are 586K a month. At a time when businesses just closed again and the winter is predicted to be horrific as far as COVID. Where is this number coming from?

4. Personnel costs this year are high. These costs are paid out twice a month and then twice a year there are three payments. However, in the projections in this packet, these higher actual costs have not been integrated. They continue to use the same lower projected number that they have not been meeting thus far this year.

At the October meeting, we were told the prediction for personnel costs for October was $2,242,000. However, the current document says the actual costs were $2,462,000. That is a $220,000 differential. 

A smarter person than I set up a spreadsheet and sent it to me. He set it up using the actual numbers we have for the first three months for sales tax and personnel costs. We used 400k a month for Rec services based on the last two months. We have been unable to get historical data as of this date so we are doing projections based on the 4 ACTUAL months of this year’s data. What we found was horrifying. With those numbers, we end the year we would have a surplus between 6-7 million dollars. This sounds great until you realize that the City needs 8.5 million to pay off the TRAN loan. The difference between the 6 and 7 million dollars is whether or not the Transfer Tax stays trending high or not. But based on these actual numbers we project that the city will end up 1-2 million dollars short of what is need to pay off the TRAN. This equals bankruptcy.

Some questions to ask the council and staff are:

1. Why are the projections not based on the actual numbers for the FY thus far?

2. Why do we have a finance director that cannot make projections that accurately reflect current market conditions?

3. Why did no one predict that the Rec Department would end with a deficit sooner given the realities of this year?

4. If there are 5 projected layoffs but not until the third quarter how much will that save the city? What Departments are the cuts going to be in-are they all Rec Department or are other departments involved. If layoffs occur on April 1 and the average total compensation is $200,000 per employee it would be a $1 million savings for an entire fiscal year but only $250,000 for the quarter of the year. This is assuming that these are higher salaried people laid off. The reality is they are probably proposing more cuts to the lowest-paid people. Regardless we need to have a number attached to these possible savings.

5. Is this yet a crisis enough for the council to recommend cuts?

6. Are these small proposed cuts enough to balance this precarious budget?

7. Why are personnel costs more than projected? When are COLA raises given? Because if it is January 1st that needs to be addressed ASAP. When are furloughs going to be extended for the full fiscal year and not just through the end of the calendar year which is quickly ending?  

The next meeting is Tuesday, November. Send in public comment. To send comments send an email to cityclerk@ci.el-cerrito.ca.us-the budget is item 7A on the agenda. It is helpful that if you have comments you send it in as public comment because it continues to create a record of citizen concerns that an email to your councilperson does not create. I encourage people to do both. The state auditor is looking at everything. We are creating a paper trail for them. They have currently started the city audit though it may be months before we hear anything from them. We are also still waiting for the City audit to become official in January. 

Here are the other emails if you want to copy council members on your public comment or say something additional to them.

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

Editing comments. Post was edited 11/14/2020 to clarify that the trend for 2020 Transfer tax was 325K a month not $375 a month. I clarified that it was not explicitly stated that the staff positions cuts would be all from Rec Department. We also do not know explicitly if the cuts proposed are for the entire 600K estimated hole in the budget due to Rec Department.

Things to know about the 20/21 budget

After my last post lamenting the lack of information from the city I tried one more time to get information from the Mayor and he too said just look at the budget book. It’s all there.

But it’s not. There is not a clear spelling out of the cuts made as shown here. Check out the budget book for yourselves. It is 250 pages I had to review again to try and flesh out the details of the below cuts. And why the City Clerk and Mayor both think that referring people to a 250-page document is transparent and accessible government is beyond me. But I can only fight city hall so much.

So what else should you know about the budget? (in no particular order)

  1. There were no substantive cuts in the police budget. It says above there is a 595K savings. But if you look at the budget book it says the jobs cut are the two school resource officers cut by the Board of ED (and they paid for one of them) and a vacant admin position. And any further savings is by keeping unfilled positions unfilled. (page 99).

Here is the current expenditures (page 10) Notice the police at 24.3% of the budget

Here is the prior year break down of expenditures with the police at 24.7% of the total budget. Not much difference.

2. The Finance Department considers getting a pay-day loan to keep the city afloat as one of their top achievements. (page 86)

3. The residents of El Cerrito were greatly deceived about the revenue for Measure D. At the time this was coming up I was telling anyone who would listen (and it was not many and before this blog) that Measure D was promising a lot of wonderful things but the measure did not include the same language as the tax it extended and allows a great deal of money to go to maintenance. And below we see half a million dollars going from construction to maintenance. So we can look at it as half full-at least the parks will be maintained or half empty as we were promised so many things and will get none of them from this tax. (page 56). I need to investigate more but it seems like everything from Measure H is going to maintenance now.

4. The revenue projections for the year seem really broken. Here is what was adopted. (page 27)

Here is the July-September Revenue report given at an October meeting. (page 45). So we would expect to be at about 25% of revenue expectations thru the first quarter of the year. Except for property taxes because of the timing of the receipt of those. You will notice in this chart below that the 20/21 budget has a projected INCREASE in sales taxes from 19/20. Did someone not tell the Finance Director we are in a recession and still mostly sheltering in place?

This one is revenue projections for the year. They have not made realistic projections at all. Especially in regards to sales tax which is one of our top revenue sources after property taxes. And you can see all the red at the bottom as far as what our cash flow looks like during the year even with these unrealistic expectations.

I am sure there is much more wrong in there but these are the things that came to me immediately when reviewing the budget book. Feel free to email me at eccfrg@gmail.com if you have other things you think I should take a look at.

City Council and Staff refuse to give basic information

I follow the budget pretty closely. I read the materials put online and try to translate them for the average resident who is interested but not able to dig through all the documents. I have been trying for months to get a detailed answer as to the budget cuts that have been made thus far. Not the chart below which has been repeatedly put into the packets but an exact description of what positions were cut and when and what that savings was. I know in the last packet there were many letters trying to save the job of a swim center staff person. I want to know what his job was and when it was cut and how much it saved the city. Same with the Assistant to the City Manager because I believe that job is not cut until January 1, 2021.

What restructuring was done at the Fire Department? Same with the police because we are not seeing any real drop in the police budget. It appears it might be unfilled positions cut. If the position was never filled is it really a budget cut? The funding for the landscape services-what was cut and what was moved to Measure H. This should be readily available information. I have requested it numerous times both through some council members and more recently through the city clerk. The city clerk referred me to the budget book with no citations of pages and I was unable to find anything with any more specificity than the below chart.

Mayor Lyman recently responded to a resident question by saying there were still cuts proposed in June on the table. Cuts on the table that haven’t been made?? I requested more information on that and was directed to this presentation by Management Partners. This presentation had many cuts in it but as far as I could tell they were never discussed in depth. One of the cuts was the elimination of Fire Station 72 and I know if that was ever discussed there would have been a big public outcry.

I went back and reviewed these strategies. Some of them have happened like the elimination of passport services and the library hours were decided not to be cut. Most of them are unclear as to whether they have happened or not. What was very interesting is this nice slide on the assumptions used for their forecast. This is something we have been begging the council to ask for from the Finance Director for his projections. These forecast assumptions seem reasonable given circumstances (and they were made several months ago). There was also an additional slide talking about the need to take action NOW!

What was the point of hiring these consultants and getting their recommendations and projections and then ignoring them?

I also requested records to see what cuts were being put into the future budget projections. I was told that there were no records in regards to that. So we continue to not know things like if the furloughs were carried over into future budget years?

The city’s refusal to be transparent has been an issue since long before this crisis. The only way they will be transparent is if we the residents push them to do so. These questions are not brain surgery. The information is readily available from the City Manager. So why are they refusing to give that information out?

Again, please write your council members and tell them to get this information out there. Please remember that the longer it takes for an action to happen the more severe the actions are taken will be.

We are alarmed but refuse to take action-City Council meeting 10/20/2020

But they refuse to take action! Councilperson Pardue-Okimoto was once again the lone voice saying make cuts now. As you can see from the below statement included in the packet we are at 11% of revenues with 25% of the year completed. Now there is an issue with the city getting our Transfer Tax money from the county due to logistical issues so that will make up some of this deficit. However, what we are seeing month after month is overly optimistic revenue projections that have no basis in reality. During the meeting, the Finance Director said we had 9 months to make up 4 million in revenue from the Recreation Department. Does anyone think we will be able to make up some of the lost revenue losses in this fiscal year? He also stated he would amend if he heard from the Recreation Department that their revenue was down. Is that not a number that should be being passed on to the Finance Director monthly? The Recreation Department was formerly referred to by Councilperson Fadelli as El Cerrito’s cash cow. And this cow is no longer producing. We need massive adjustments to be made.

Apparently an over $844,000 revenue shortfall in one quarter is not enough to inspire the council to act. Mayor Lyman was alarmed. Councilperson Quinto was alarmed but both said lets keep on watching for another month or two. Because not acting on bad budget news is exactly how we got to this crisis in the first place.

I am at a loss here. Except for a few dogged individuals the public comment is quiet unless they try to cut something people love like the library or a swim center staff person. While the council has at least improved to the point that they are looking at monthly statements their refusal to act is a stunning betrayal of public trust.

I get the public numbing out. We want to live our lives and not be constantly worried about government on all of its levels. However, if the city goes bankrupt it will be a disaster. Every service that people love will be decimated. Services that are needed like Fire will also be cut. Look at what happened to Vallejo. They paid over 20 million in legal and other fees on their bankruptcy. They are struggling to this day, 8 years after emerging from bankruptcy, because of their pension debt which was not resolved in the bankruptcy. At the time they cut the library and senior services and 40% of the police budget. This is what El Cerrito faces without better fiscal management. The consultants hired by the city already have proposed closing Station 72 of the Fire Department something that is widely not supported. But at the end of the day we need both more revenue and expenditure cuts. We need a City Manager and Council willing to make substantive changes. All the changes thus far have not even touched the pension debt issue which is rarely even discussed.

If the City declares bankrupcty (which will happen if we cannot pay back our 8.6 million dollar loan in June 2021 we can anticipate all services to be cut or eliminated. We can perhaps even predict falling housing values like what happened in Vallejo.

What I can say is if you are concerned please write to your council memebers and also submit public comments at the meetings. Council members need to hear from residents. Every voice does matter. If it had not been for a bunch of people sending emails and pushing I doubt we would have seen much action at all. And if you have not voted for council yet please vote for the people you think will best be able to address this budget crisis.

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