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Decreasing Revenues, Increasing Personnel Costs Could Threaten City Services and Programs

Published on Tuesday, May 10, 2016 | 5:30 am
 

The 2017 City of Pasadena operating budget presented for consideration to the City Council Monday evening shows a city in “sound financial health for the coming year”  – but trouble looms on the horizon.

The proposed budget presented by Interim City Manager Steve Mermell actually anticipates “modest revenue growth” in 2017 that will enable the city to make some “very minor enhancements to programs and services,” with increasing investment in the city’s infrastructure, particularly in the areas of water and power.

But as 2018 approaches, the City will begin to spend more than it receives in revenues, “creating a structural deficit that will grow larger if not addressed,” according to Mermell’s presentation letter.

“In order to address this,” the letter continued, “staff is recommending that a comprehensive effort be taken to determine the appropriate and sustainable level of City services, to ensure that any reduction in services be managed to minimize any negative impact, to take every reasonable measure to enhance city revenues.”

And while a number of revenue areas have increased, none has the ability to close the budget gap, according to the report.

Therefore, the budget recommendation says, ominously, “There are a number of programs and services that warrant further analysis to determine their relative cost-benefit. With the City Council’s endorsement, the staff will undertake this effort.”

The 2017 fiscal year budget totals $760.7 million overall, with an operating budget of $623.3 million, capital appropriations of $63.5 million and appropriations of $65.6 million for the City’s three operating companies — the Rose Bowl Operating Company, The Pasadena Center Operating Company, and Pasadena Community Access Corporation.

The City’s recommended General Fund for 2017 is $236.8 million with projected revenues of $237.6 million. The General Fund provides for the City’s basic services, including public safety, public works, and parks and recreation. There are also $8.2 million of proposed enhancements in the areas of water, power and Building Services funds, with adequate revenue to meet the increases.

But, back to the future. The City’s five-year budget projection indicates that without increased revenue, decreased expenses, or “some combination thereof,” the City’s General Fund will begin to decrease. Should this occur, the City will need to draw from its “savings account”—its fund balance—to make up the difference.

Much of the increasing budget costs can be tied to personnel costs, particularly to employee pensions, the budget report states. In addition, some previously reliable sources of revenue may shrink in the coming years, including Utility Users Tax, which residents pay as part of their cable TV service. Changes in technology have decreased the number of cable TV customers.

Property taxes from businesses and residents have remained steady, even growing slightly, according to the report, but the costs of employee pensions continues to increase. The City’s contribution to CalPERS has also been increased in recent years. Although employees are paying more into their pension contributions, Pasadena will pay $43.2 million into the fund, of which $24.1 million is in the General Fund.

The City’s Worker Compensation Fund is also underfunded, according to the report, and has been increased 25 percent in the 2017 budget. The City plans to “re-evaluate” the program next year to determine “better management practices” for the program.

Mermell also suggested Monday evening that, with an increase in Transient Occupancy Tax coming from new hotel projects, those funds should be redirected to the General Fund.

“We need to examine our fees and charges to ensure they are recovering the related costs of service,” he said.

Councilmember Victor Gordo also suggested exploring other options, such as a parcel tax.

Yet, as the report stated, “Continued upward pressure on expenses, largely in the form of personnel costs, is expected to remain.”

 

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