Tax Committee Challenges City Council to Get Fiscal House in Order

The members of the Municipal Tax Review Committee are unanimous on two major points: 1) that Piedmont needs to extend the municipal services parcel tax for another four years, and 2) the City Council needs to reform the handling of city finances in order to balance the budget and restore reserve funds.

With two members absent, the committee voted 7-0 Wednesday, Aug. 3, to recommend that City Council take steps to implement better financial controls, establish spending priorities, curb employee compensation increases and ensure any new commitments have a net zero impact on the budget. The recommendations further suggest that council put off a parcel tax vote from November until June, when state elections will be held, to give the city time to show progress in getting its fiscal house in order.

"Passing the current parcel tax without addressing expense commitments is not fiscally prudent," concludes the executive summary of the report that the committee will forward to council.

After spending months poring over budget spreadsheets, the committee projected that if budget trends continue, Piedmont's operating balance will fall approximately $6 million short of the level needed to maintain a recommended 15 percent reserve. The city faces that shortfall even if the parcel tax is renewed at its current rate and levied at the maximum generating about $1.5 million each year through 2017.

It's been just in the past four years since passage of the last parcel tax measure, the committee determined, that Piedmont's finances have "substantially deteriorated."

The committee found that the balance in Piedmont's general fund has dropped by more than 50 percent since the end of the fiscal year in 2006, and the aggregate of the city's other funds—including its sewer and capital improvement accounts—have dropped by nearly half since 2007. 

Though the committee acknowledged that municipal revenues took a big hit from the economic crisis of the intervening years, it points a finger at failures of the city's leadership for landing Piedmont in financial doldrums.

"The larger part of the problem is rooted in spending commitments that Piedmont has taken on with neither multi-year planning nor reference to future impacts," the committee wrote.

In particular, the committee cited the city's decision to opt for the highest employee pension level offered by the state's retirement system, CalPERS, which has been the primary factor causing the cost of benefits to balloon at a rate of roughly $1.8 million a year since 2006, far outpacing the growth of salaries.

The committee further noted that the city has not been setting aside the $1.3 million a year staff estimates is needed to cover long-term equipment replacement, facilities, maintenance, and other critical capital projects.

The committee also faulted the city for taking on what it characterized as "commitments and risks that [Piedmont] cannot sustain." The group named as such liabilities the 50 percent , which the city took over from the private Swim Club July 1, and the tentatively approved for which the city has not yet received a complete financial plan.

The committee's report gives City Council a suggested to-do list for getting spending under control:

• institute a five-year budget planning process;
• establish a Municipal Financing Planning Committee to review and provide guidance to the council on the five-year plan and any new program commitments that would cost more than $250,000 annually;
• highlight annual growth of transfer tax revenues more than 2 percent above a $2.5 million base, and property tax revenues more than 4 percent above the 2010-2011 level as "temporary," ideally to be set aside as reserves;
• designate city services as "essential" and "non-essential" for the sake of prioritizing funding;
• adopt formal objectives to maintain necessary balances for capital and equipment replacement funds;
• establish procedures for executing capital projects costing more than $250,000 to avoid a repeat of the that saddled the city with the bill for more than $2 million worth of overruns;
• take action to cap employee pensions and other benefits and ultimately reduce those costs as a percentage of salaries;
• take steps to ensure costs of any new commitments, including operation of the community pool and the proposed development of Blair Park, be paid for by user fees or targeted parcel taxes and not general fund revenues.

Three committee members additionally promised to hold back their endorsement of the parcel tax extension unless City Council takes the their advice.