Mayor Bob Foster. Photos by Brian Addison.
Mayor Bob Foster and City Manager Pat West laid out the budget recommendations for the 2015 fiscal year today at Miller Family Health Center in North Long Beach. In his final proposed budget, the outgoing Mayor Foster issued a stern warning for incoming Mayor-elect Robert Garcia and the new City Council: take action now, or pay dearly in the not-too-distant future.
“While we have weathered a great storm with the financial crisis, there’s another very large storm brewing,” Foster said.
With just five days left in office, Foster recognized that even though city council rolled over the financial surplus that resulted from last year’s budget to help offset future costs, it will only alleviate a small portion of the problem that he described as a “freight train” heading toward the city. The locomotive that Foster spoke of is partially composed of increased costs of public pensions, the renegotiating of city employee agreements and other city employee costs that will affect the city as he hands over the reigns of the city to Garcia.
The California Public Employees Retirement System (CalPERS) and its looming impact on the city’s general fund was at the forefront of the agenda for Foster. It’s estimated that starting in 2016, the increase of CalPERS expenses for the city will rise from $4.6 million additional dollars needed from the general fund to nearly $36 million in 2021, an 87% increase.
“This is what we’re facing in fiscal year ’17,” West said. “We know it’s coming, CalPERS has told us. This is not a projection. This is reality and that’s what we’re basing this budget around. This is going to hit us and we’re going to have to pay for this. It’s a good thing, we need to fund our unfunded liabilities but there’s going to be a lot of pain and suffering if we don’t plan for it.”
Additionally, although the city does not offer health care for retired employees, it does allow for accumulated sick hours to be used to purchase medical coverage after they retire. However, the accumulated hours and resulting payouts are calculated by multiplying left over sick hours by the final salary of the retired employee. This, according to Foster, has created an unfunded liability to the city of $119 million.
The mayor also pointed out the problem of skill pay and the unregulated nature of the classification of skill that is costing the city unnecessary dollars. Currently, Long Beach has 136 active skill pays and there are 300 allowed classifications of skill pay which include bilingual ability, additional schooling and certificates. Foster said that if the new city council initiates a review they can eliminate many of these that are outdated, as well as compounded skill pays, and that curtailing them will offer the city substantial savings.
While he agreed that employees should be compensated for their skill sets, he recommended that the total be shaved down to no more than 30 skill pay enhancers city-wide to help keep salaries focused on job-relevant pay skills so that the money saved can go to help offset the CalPERS increases. Foster also recommended changing the equation for rolled-over sick time to be multiplied by the salary at the time it was accrued instead of ending salary, and raising employee retirement contributions from the current rate of 9% by another one or two percent.
City Manager Pat West.
“You’ll be told, and we’ll hear it again, that we’re ‘balancing the budget on the backs of employees,'” Foster said. “Nearly 75 percent of our budget costs are on salaries and employee related expenses. Where else are you going to look?”
The issue of expiring contracts for city workers was something Foster said was “both good and bad news.” It’s good news because it’s an opportunity to look over the contracts and see if there’s a need for reform, and bad news because most employees will be expecting a pay raise. He pointed out that every one percent in pay increase translates to another $2.6 million dollars in expenses from the general fund, something that is not doable in the current economic climate.
“I don’t know how the city can give any enhancement of pay in this environment,” Foster said. “That’s just the blunt truth.”
West outlined the fact that during the last six years the City has made difficult cuts that have resulted in the elimination of 714 positions, saving nearly $134 million, and that the surplus from the previous year’s fiscal plan will help offset future costs. The strides toward making Long Beach more efficient and its services more cost effective have made great progress, but as Foster had mentioned, it won’t be enough as the future costs begin to escalate.
Proposals to raise taxes or even the price of oil, something that has served as supplemental income for the city’s general fund in the past, is something that Foster said is misguided. While he was open to putting a tax increase on the ballot for voters to decide on, raising the price of oil anywhere above $70 a barrel, a benchmark price that is used for ongoing budget expenses, would lead to a negative reaction which could potentially lower the city’s bond rating. It would also only increase the city’s revenue $1.2 million dollars for every $5 hike in price, which would make it an even riskier move given the volatility of oil.
Increasing partnership with the private sector, though, was something that Foster said was a necessary measure for the city to continue on its path to efficiency and cost cutting. Getting the best company for the job, whether it be city operated or an outside source was something that the mayor said the new regime needed to take a serious look at. He noted that there are political reasons for why it hasn’t happened more frequently and that some office holders are afraid of it, but that the council needs to “hold management’s feet to the fire” on the issue.
“The fact is it’s done all over the world,” Foster said. “And in the face of what’s coming at the city, not to look at it would be criminal in my view.”
The recommendations Foster made were admittedly harsh and won’t be popular, but the health of the city depends on taking action now to prevent more draconian measures having to be implemented in the future. He stated that if his term weren’t coming to an end July 15, he’d make certain that this plan is put into place. But, as the outgoing mayor, he can only implore Garcia and the reshaped city council to set a head-on course to tackle these financial issues facing the city. This isn’t something that can be “papered over” according to Foster, otherwise today’s problems will eventually consume the city in the future.
“This is the responsible thing to do and that’s why I’m taking this extraordinary measure to put these recommendations out there,” Foster said. “I live in this city, I will continue to live in this city and I want to see it well run, I want to see it well serviced and I want to see fiscal discipline continue.”