Tuesday, December 7, 2010

Budget solutions shot down

November 30, 2010, 01:12 AM By Bill Silverfarb Daily Journal staff
A number of new ideas to solve San Mateo’s ongoing structural deficit came out of a study session Monday night including asking upper management employees to take salary reductions, placing a moratorium on consultant spending and putting a cap on revenue.

Those ideas were all suggested by Councilman David Lim, who also hinted that the city’s restrictions on building-height limits may need to be lifted to help the city realize greater income.

Most of Lim’s ideas, however, were not favorably received by Mayor John Lee, who gave his own ideas as to why consultants are a necessity, why management is paid so well and why it would be impractical to put a cap on expenditures.

The city’s structural deficit is approaching $5.4 million and city staff has come up with a plan to stem the deficit by sharing services with other cities, deciding which city services are “essential” and seeking wage concessions from its employees, who eat up roughly 76 percent of San Mateo’s $76.9 million general fund.

The deficit is expected to grow to $7.1 million by fiscal year 2012-13, according to a staff report.

Lim suggested the city cap its general fund revenue at $80 million over the next several years so that expenditures can stay aligned with revenue as the city anticipates a modest general fund growth of just 2.5 percent a year, compared to the historical high of 5 percent.

“How can you cap the general fund? This is a growing city,” Lee said. “What we need to do is find a way to slow down retirement funding.”

A staff report by City Manager Susan Loftus and Finance Director David Culver show how the city can make significant savings by implementing a two-tiered pension and benefits package for new hires in a staff report on financial sustainability planning.

Public safety workers, for instance, can currently retire with an average of 3 percent of the three highest salaried years at age 50.

In the past several years, San Mateo has reduced its budget by more than $15 million and has eliminated 121 positions, according to the staff report.

Despite the reductions and loss of employees, the city faces significant increases in pension compensation cost, according to the staff report. The employer contribution rates for public safety employees are projected to increase from 27.9 percent this year to 45 percent by fiscal year 2018-19, according to the staff report.

The city’s general fund revenue is expected to climb to $95.6 million by fiscal year 2018-19, when the Measure L quarter-cent sales tax expires.

Lim noted last night that 14 employees with the city earn more than $200,000 a year.

“We are asking rank-and-file employees to make deep concessions, why not upper management,” Lim said.

But Mayor Lee justified the high salaries.

“You get outstanding people by paying outstanding salaries to get an outstanding performance,” Lee said.

Lim also noted the city spends in the range of $800,000 to $1 million a year on consultants for topics ranging from high-speed rail to senior issues.

But Lee and councilmen Robert Ross, Brandt Grotte and Jack Matthews all said that consultants provide an expertise city staff cannot.

San Mateo’s most volatile funding source has been the property transfer tax, reaching a high of $10.4 million in fiscal year 2006-07. The number dropped by 70 percent in just two years, however, to $3.3 million in fiscal year 2008-09.

Median home prices in San Mateo have dropped 25 percent since 2007 from a historical high of $781,500 to about $590,000 this year.

The property transfer tax is forecast to reach $5.4 million in 2013-14. This year, the city expects to net about $4 million from the property transfer tax.

After 2014, staff has capped the property transfer tax at $5.4 million regardless of how much the city actually nets from it.

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