Pinole Budget Workshop (Special Council meeting) 4-30-24

Tuesday, 4-30- Special City Council meeting, 5 PM, Hybrid. You can find the agenda packet here – note that the city is shifting to a new agenda website.

There are three workshop items- the strategic planning financial report, the city’s baseline Financial Year (FY) 2024-25 budget, and the city’s draft FY 24/25- FY 28/29 Capital Improvement Plan.

The strategic planning financial report is important, so I will highlight the key details here. The first is at the end of the report, where it states “The fiscal impact of taking no action would leave the City’s General Fund fully depleted of reserves by FY 2028-29, at which point the City would be forced to implement hiring freezes or layoffs to avoid bankruptcy. The option of “doing nothing” is not feasible without forcing the City into bankruptcy proceedings.” and “The status quo fiscal model indicates that the City faces a structural deficit that would increase from an annual shortfall of $7.8 million by FY 2034-35 to a deficit of $10.5 million by FY 2044-45. Reserves would be fully depleted by FY 2028-29. Without taking any action, the City would face severe fiscal consequences, such as bankruptcy, which could mean significant reductions or full outsourcing of services, including police, parks, recreation, and public works. It would have negative impacts on economic development and quite possibly home prices. The City would face difficulties in recruiting and retaining its workforce as it would have a negative reputation in the labor market.” (agenda packet, page 53). In other words, if we do nothing we go bankrupt, most likely in FY 2030-31, when the Section 115 trust runs out. (See figure 2 on page 10 for a graph illustrating the deficit curve).

Baker Tilly presents 4 possible scenarios to avoid this- Scenario 1, where the city immediately (as of November 2024) passes every revenue option open to it- parcel tax, sales tax, users utility tax, real property transfer tax, business license tax changes and increased franchise fees. It does not undertake any cuts. (pages 15-17) This scenario does provide adequate revenue (as shown in figure 3 on page 17 and figure 4 on page 18), but that number of tax changes would probably need to go over multiple election cycles, reducing the effect.

Scenario 2 has a mix of revenue increases and cost cuts. It assumes increased franchise fees, UUT expansion, a real property transfer tax on the revenue side, and on the cost cut side it assumes increased employee pension contributions, increased employee medical contributions, ending the medical retirement benefit for new employees (though the impact of that is not tracked in the figures, see page 20), and a flat cut of $500,000 to general fund expenditures in every year going forward (pages 18-20). This scenario provides adequate revenue through FY 31/32, after which expenses yet again exceed revenue by increasing margins (see figure 5, page 20 and figure 6, page 21). In other words, moderate cuts and revenue gains are not sufficient to solve the longer-term problems once the section 115 trust runs out.

Scenario 3 is entirely based on cost cuts. Like scenario 2, it assumes increased employee pension contributions, increased employee medical contributions, and ending the medical retirement benefit for new employees. Unlike scenario 2, it calls for all remaining costs to be cut from the general fund directly (through such means as hiring freezes, layoffs, deferring or removal of capital projects, department closures and outsourcing), averaging out to 12% reductions every year and ranging in raw amounts from $1 million to $7.6 million in any given year over the period. (pages 21-23). While the report states that there would still be a deficit of $4.5 million in FY 2044-45 with this model, this is not shown in figures 7 or 8 on page 24.

Finally, there is Scenario 4, which has one revenue increase (sales tax) and 10% expenditure reductions as in Scenario 3 from every year after FY 2030-31 (ranging in raw dollar amounts from $3.4 million to $7.4 million). (page 25). As figures 8 and 9 on page 26 show, this would stabilize the budget, but would also have substantial impacts to city services.

There are also more detailed looks at the various strategies- how much revenue would be expected from a sales tax, or a real property transfer tax and so on. Given frequent complaints over roads, I think it’s worth highlighting strategy 5, which would stabilize the city’s road condition through a $25 million general obligation bond (which would end up costing $43 million assuming the city’s finances are rated investment grade), and which would require a 2/3rds majority vote by the council and the voters. (pages 33-35). I do not think it would be realistic to assume an investment grade rating on the city’s debt given our current economic trajectory, and *none* of the scenarios account for the associated costs of this strategy.

The city’s baseline budget shows a $1.3 million dollar deficit (page 56), due mostly to increased CALPERS costs ($700,000) and healthcare costs to a lesser extent (page 60). As a result, the city is going to need to implement immediate cuts, the nature of which are not yet available. (page 56).

Finally, the capital improvement plan lists projects removed (energy upgrades and hazel st gap closure), expected to be complete by july (tree mitigation, high capacity trash bins (though I think this one was removed), sewer plant air release valve replacement, hazel st storm drain improvement, safety improvements at Tennent and pear/plum streets, safety improvements at Appian and Marlesta (the new stoplights), energy conservation generation and storage plan, active transportation plan, municipal broadband feasability study, and the parks master plan), and recommended for addition due to outside grants or priority (tiny tots flooring and painting, sewer plant solar and battery, lower tennent trunk sewer capacity, sewer plant boiler and centrifuge replacement, Pinon-2 capacity, Pinon trunk sewer capacity phase 2, storm drain creek discharge improvements, old town traffic calming, sidewalk rehabilitation program and road maintenance repairs) (pages 68-69). The total cost impact in this fiscal year is $19,118,464, of which $90,000 comes from the general fund, $4,125,262 comes from measure S 2014, and the rest comes from dedicated funds such as the sewer enterprise fund for $8,190,000 (page 81). There are also many unfunded projects, which can be found on page 84.

You can join the meeting by zoom direct link here, entering the webinar ID 893 3500 0272 into zoom directly, or calling +1 (669) 900-6833 or +1 (253) 215-8782 or +1 (346) 248-7799, then entering the meeting ID 893 3500 0272#. Once in the meeting by phone, you can raise your hand by pressing *9, and unmute by pressing *6 once called on. You can also attend the meeting in person at Pinole City Hall, 2131 Pear St.