Article by Matt Dupree
Tight belts, like tight jeans, are in fashion. This sort of stoic frugality is the spirit of the proposed Revenue Smoothing Fund, a preventative financial mechanism which intends to lessen revenue shortages by siphoning off revenue swells. The RSF proposal suggests that a certain amount of any upswings in city revenue be shaved off into a separate fund, which will be drawn from should the city’s revenues not reach the established median for growth.
This established median sets a baseline (adjusted for inflation) which determines whether or not a given year has been “good” or “bad” (seriously, the proposal officially splits fiscal years into designations called “good” and “bad”). If the year is on Santa’s nice list, it gets part (50% of the increase in revenues, not to exceed 3% of total General Fund revenues) of its presents shipped off to the fund to await any future years which end up on the naughty list. These underperforming naughty-list “bad” years would then be given enough money for them to get half-way back to that established median growth level. Unless that year seriously falls short, in which its withdrawal from the RSF would be limited to 3% of the General Fund revenues.
It’s not as complicated as it sounds, but it certainly is complicated. Essentially, any digression from the predicted revenues will have pushed closer to the prediction by either subtracting money from or adding money to the general fund. But there are some issues with this. First, the RSF requires the median growth level to be set with near-clairvoyant levels of accuracy. If this median does not correctly predict the growth of the city’s revenue, every year will fall good or every year will fall bad as the real trend splits off from the prediction. If too many years are “Good,” the RSF will become a useless slush fund that never serves any purpose to the taxpayers. If too many years fall bad, the RSF will be zeroed out so often that it also never serves any purpose. Similarly, it requires the good to come before the bad, almost in lock-step. Without an even mix of “good” and then “bad” the fund dissolves. This yin yang quality of the RSF is certainly poetic, but its not particularly efficient.
At this week’s miniaturized council meeting, after Councilmember Johnson pushed forth his support for the RSF, Councilmember O’Donnell pointed out one of its biggest flaws: Long Beach already has two reserve funds, one operating reserve and a secondary reserve fund that is currently at $9 million. The real existential conundrum of the RSF, however, was pointed out by Mayor Foster. “Saving half of an anticipated windfall, if you don’t control expenditures, really doesn’t do much.” The RSF is an attempt to even out inconsistencies (albeit only the rhythmically consistent and entirely predictable ones), but it doesn’t solve the big economic problem: how to get by with what you have. As the mayor put it, “It’s important to ingrain–in all of us–fiscal discipline, and revenues are an important, but by no means the most important part of that.”
The RSF isn’t breaking any rules of fiscal thermodynamics. It doesn’t create or destroy money, it simply moves it around. Inevitably, financial shortcomings will have to be dealt with. Budgets will have to be trimmed. The difference with the RSF is that it makes extra trims automatically. The RSF is like leaving a twenty-dollar bill in a pants pocket, and then finding it on laundry day. The fund has been referred for consideration to the Budget Oversight Committee (made up of council members DeLong & O’Donnell as well as Vice Mayor Lowenthal), who will ultimately decide if it is worth implementing into the city’s budget.
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