Still grappling with how to overcome a big budget shortfall -- $3.8 million this year and $6.2 million next year -- the city turned its attention to increasing revenues.
Finance Director Juelle-Ann Boyer presented a menu of options, ranging from increased fees that could be instituted by the council to multi-million-dollar tax hikes that take a vote of the people.
Council members requested more information on several alternatives, while showing a strong distaste for higher taxes and fees. They suggested there are ways to make city operations leaner without seriously cutting services.
"We need to be sure that the city is a lean government, rather than adding fees and taxes," said Mayor Beverly Johnson. "I'm not sure we're there yet."
"The solution might be a mix of adding employees (who generate revenue), cutting department budgets, cutting services and raising revenues," said Councilwoman Marie Gilmore. "Any way you slice and dice it, we're going to look at cutting some services somewhere. I don't think the public is going to tolerate raising the revenue we need to maintain the current level of service."
City staff will ask for a formal response to the Nov. 16 presentation in January. See January 18th article.
Collectively, those proposals could raise more than $3 million, including $2.7 million from the transfer tax proposal.
Vice Mayor Tony Daysog continued to press for closing City Hall one day monthly, including a comparable reduction to police and fire services, as a solution to the city's long-term drop in revenues.
He thinks police and fire schedules can be arranged so services won't be cut.
"I'd rather not do this but together, they are almost two-thirds of the city budget," Daysog said. He thinks it's likely employee unions will buy into the closure because it would mean they still have jobs.
Boyer and city Human Resources director Karen Willis are working with the police and fire chiefs and the city attorney to write a report on the closure proposal.
"The meeting was very productive," Boyer said. "We moved along the budget development process so we have a better understanding of what their choices are."
"I don't see the cuts (we made with the July budget approval) being implemented," said Councilwoman Barbara Kerr.
Some of those cuts, such as the two employee layoffs, take time to implement, Boyer said. As of Nov. 1, the city has reduced appropriations by $630,000 and increased expected franchise fee revenues by $200,000, according to Boyer.
The council will see the results of its cuts at the mid-year budget review, Boyer said. The review is typically done in February but she hopes it will be in January. Boyer will also give council monthly reports comparing the budget with actual expenditures to date.
Without any cuts or revenues, the city is looking at using a quarter of its $12.9 million undesignated reserve fund this year.
Retirement Costs Hindering City Budgets
Alameda Sun, February 24, 2005, Adam Martin
Cities all over the state have been experiencing budget shortfalls in recent years and though there are many factors involved, skyrocketing retirement costs for public employees are making it difficult for cities to balance their books. The city of Alameda experienced a 615 percent increase in retirement plan spending for city employees from 2002 to 2004.
According to the city’s Comprehensive Annual Financial Report, “We had unprecedented increases in retirement costs largely due to investment losses by the California Public Employee Retirement System and increased public safety retirement benefits.”
City contributions to the retirement system increased from $1.6 million in 2002 to $9.86 million in 2004, according to Maze and Associates’ Memorandum on Internal Control Structure, an addendum to their financial report. 440 of the state’s 478 cities contract with the state system for their employee benefit programs, making Alameda’s problem indicative of a statewide trend.
City Councilman Frank Matarrese worked on the budget with the mayor and the rest of the city council, which was passed at their meeting last Tuesday.
“This is the driving force of the difficulty we’re having with the budget, the cost of the benefits we have to provide: health and retirement,” he said. “We have to get a handle on escalating costs.”
The retirement system is a “defined benefit system,” meaning benefits to retirees remain the same regardless of the performance of the system’s massive investment portfolio. In this kind of system, employee contributions, employer contributions and investment returns all contribute to a defined set of benefits for plan members. This means that if investment returns fall off, as they have in recent years, the employer — in this case the city of Alameda — must make up the difference.
An alternative to the defined benefit plan is a “defined contribution plan,” such as a 401K, in which employer contributions remain fixed and market fluctuations affect benefits. In his State of the State address Jan. 5, Gov. Arnold Schwarzenegger advocated overhauling the state retirement system into a defined contribution plan. This model has encountered resistance from city unions.
According to Dwight Stenbakken of the League of California Cities, the current levels of city spending and investment returns mirror those of the 1980s. He said changes in spending levels were cyclical, however, “The problem is that this one (the recent drop in investment returns) happened so fast.”
Stenbakken indicated that effects of recently increased investment revenues would not immediately show up in the city’s financial report. “There’s a lag on when that will affect the city,” he said.
Marion Miller, of the Alameda City Employees Association, warned against the governor’s plan. “It’s going to cost workers a lot more if we change that system,” she said.
According to Alameda’s contract with the state retirement system, employees are divided into safety employees (the police and fire departments), and miscellaneous employees (everyone else). Safety employees retire with 3 percent at age 50, which means they receive a yearly pension of roughly 75 percent of their earned income, while miscellaneous employees retire with 2 percent at 55, which means they receive roughly 50 percent of their earned income.
Miscellaneous city employees have been covered under the state retirement plan since 1957. Alameda began covering safety employees’ retirement benefits with the state system in 1990.
Matarrese said the city should act to prevent more problems. He emphasized that the city would not touch its employees’ health benefits but might consider cost-cutting measures with regards to retirement plans: “If there’s something creative we can do, we’re open to that.”
City of Alameda - Historical Data on Finances
Times Star Article On July Passage of City Budget
In response to the Governor Schwarzenegger's 2005 Reform Proposals related to public employees pensions, the Legislative Analyst Office prepared an
detailed analysis of public employees pensions.
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