What does Glendale’s Budget deficit, Unfunded Debt, and Developer Subsidy’s have in Common
As the Great Recession ended, 61 key cities across America—the most populous one in each state emerged with a gap of more than $217 billion between what they had promised their workers in pensions and retiree health care and what they had saved to pay that bill. Besides pensions, many localities also have promised health care, life insurance, and other non-pension benefits to their retirees, but few have started saving to cover these long-term costs. Wide disparities exist in how prepared cities are to fulfill their pension obligations. (1)
Development fees may more than double – Apartment and condominium developers may have to pay more than twice as much as they currently do in part to development-impact fees next year because the current fees don’t fully cover how much new developments cost the city. Developers currently pay $7,000 per residential unit, but the city may hike that to $15,645, which is what a consultant recommended in 2007. The proposed fee increases come after the current development boom in Glendale, which may bring roughly 3,800 units in 21 developments to south Glendale. Najarian, after the fact said, at the Dec. 17 council meeting, “that it is imperative that we set those rates immediately to where they belong and not subsidize these mega-developers anymore.” (2)
Why didn’t City Council members push for a new ordinance a year ago, prior to 21 major developments being approved by the City Council. In fiscal year 2012-2013, the City Council was nonstop approving development after developments, fully aware that they needed to increase development fees ASAP. Instead of collecting $5,945,100, on 3,800 units, the city only collected $2,660,000, a difference of $3.285 million dollars. In addition, the city saved developers substantial sums by approving inadequate parking spaces in violation of the downtown specific Plan (DSP). Each parking space cost the developer a minimum of $25,000. So if the Council approved the developer 100 less parking spaces on multi-use building that should have been provided per the DSP, based on the number of units built, guest and commercial parking, the council in effect saved the developer $2.5 million dollar.
As a result of this willful gross negligence by the GCC, the City is expected to face deficits in the millions over the next several fiscal years, according to the city’s 2012-2013 Comprehensive Annual Financial Report (CAFR) released last week. According to the report, as reported by the GNP, citywide cost increases, mostly driven by employee compensation, including pensions and healthcare benefits, must be matched with ongoing revenue increases. By fiscal year 2017-18 and 2018-19, the city could experience deficits of about $6 million and $2 million respectively. (3)
Total debt increased by about $42.5 million, or 11%, due to a combination of items, including increases in post-employment benefits and the issuance of water bonds. Finance Director Bob Elliot, said, “our main focus will have to be over what we can control, and that is our costs, which…will mean looking at additional strategies to control them,”. (3) In April 2013, the GNP reported that Pension cost rise threatens Glendale’s budget. Glendale officials warned that planned changes to how the state’s pension agency calculates contribution rates will have a significant impact on a city’s future budgets. (4)
Glendale’s unfunded pension liability— the difference between the assets it has and the cost of the promised benefits — increased from $191 million in 2011, to $227 million in 2012, to 239 million in 2013, per the City’s CAFR’s – Comprehensive Annual Financial Report.
CalPERS approved a proposal to increase how much cities pay for their benefit plans starting in 2015, in an effort to fully fund the system in 30 years, and in order to “enhance the long-term sustainability of the fund,. Median contribution rates for public safety and miscellaneous personnel could jump by 34% and 36%, respectively, over 10 years, according to CalPERS. Bob Elliot said, that the impact, could mean more money being set aside for pension payments from the General Fund, which pays for parks, libraries and other public services. (4) Henceforth, the reason why the city has been pushing for a Parks, Library, & Safety Officer District parcel tax assessment that would impact only 38% of the residents and businesses who own their home property, while leaving 62% of the renters unaffected.
It apparent, that the GCC is only targeting homeowners and business owners. This does not appear to be a fair or equitable solution, especially since council members are primarily responsible for unsustainable salaries, pensions and benefits, substantially increased over the past thirteen years in conjunction with inconsequential employee contributions. In 2011/2012, Glendale’s pension reform only impacted new hires, not current employees that will not kick in for another two decades.
San Jose Mayor Chuck Reed, a Democrat who successfully passed his city’s pension reform in the last election, is now pushing a statewide reform initiative for the November ballot in 2014. It “would give California cities and other public agencies the power to renegotiate changes to current employees’ retirement benefits for future years of service, while leaving intact all accumulated service credits and benefits earned in prior years. Reed’s initiative would only attempt to make employee pensions more sustainable for future budgets, so that cities would be able to continue to provide essential public services, and remain solvent in meeting its debt commitment. (5)
Underlying this initiative, is future out of control increases in employer pension contributions, that are chewing up an ever increasing portions of local government budgets, forcing cities to cut public services, furlough or lay off employees, and underfund the maintenance and repair of our streets, sidewalks, and the rest of our deteriorating infrastructure. This proposed change to California’s “vested rights doctrine” was recommended by the Little Hoover Commission in February of 2011 when it “confirmed that California [and its local governments] cannot solve its pension problems without making prospective changes going forward for current employees.” (5)
Rethink Pensions for Current Government Workers. Taxpayers have no desire to let untouchable pensions crowd out public services. Legislators and/or voters — need to give local governments the flexibility to adjust current workers’ retirement payouts. Otherwise, cities and counties will face relentless rising costs that threaten to undermine local governments financial stability and fiduciary responsibilities. (6) Local governments will continue to struggle with rising retirement expenses as long as they can only address part of the pension equation. California needs to change pension rules, or watch ballooning retirement costs replace local services taxpayers need and want. (7)
Let’s see what Bob Elliot proposes for the 2014-2015 budget year. This is his day of reckoning His integrity is on the line since he said that that his main focus this fiscal year will be in controlling costs. He has few choices, i.e., consolidating city departments, streamlining positions, not refilling open employee positions, due to attrition, i.e. layoffs or retirement, and/or renegotiating with the city unions, to reduce overtime, salary perks, pension spiking, post retirement benefits, and/or increase employee contributions to offset the increased CalPERS employer contributions to deal with the unprecedented unfunded employee debt. It would reprehensible if Mr. Elliot attempted to cut further into city program funding, that has nothing to do with the cataclysmic decisions made by the current and prior city councils that enriched city employees, by way of early retirement, and unsustainable salaries, pensions, and benefits.