San Leandro City Budget Turns From Black To Red

Despite a booming local economy, a $5 million general fund surplus when I left office, and overseeing the Yes on Measure HH campaign that resulted in a $10 million boast in sales tax revenue in fiscal year 2015-16, the City of San Leandro is now running multi-million dollar deficits with no end in sight. 

How could this occur? Exploding employee pension costs is the prime reason. Employee salary and benefit costs jumped $7 million from fiscal year 2016-17 to the current fiscal year.

Mayor Cutter and City Council needed to continue to make progress on employee pension costs in labor negotiations and didn’t. These photos are from San Leandro Finance Director David Baum’s presentation at the city planning retreat on January 20, 2018.  Here is a link to presentation powerpoint.

Here is an article on the San Leandro budget deficit from the San Leandro Times:

City Budget Forecast:  In the Red
San Leandro Times, February 1, 2018

The City of San Leandro’s unfunded pension costs have doubled in the past four years, according to a recent budget presentation, which also shows that the city’s general fund is projected to be in the red over the next several years. City Finance Director David Baum says San Leandro is currently looking at $210 million worth of pension liabilities looming, compared to $105 million in 2014. 

Former Mayor Stephen Cassidy has long said the pension system in San Leandro and beyond is untenable in the long run. Cassidy said the city took some measures during his time at City Hall – including having employees pay a percentage of their salaries into CalPERS – but the city hasn’t done enough since then. 

“Despite a booming local economy, a $5 million general fund surplus when I left office plus a $10 million boost in sales tax revenue following the passage of Measure HH in November 2014, the City of San Leandro is now running multi-million dollar deficits with no end in sight,” Cassidy said. “The City needed to continue to make progress on reducing employee pension costs in labor negotiations and didn’t."

Baum said the reason pension costs to the city have ballooned is due to poor investments by the California Public Employee Retirement System (CalPERS), the pension program for state and city workers. CalPERS manages the largest public pension fund in the United States, with over $320 billion in assets. 

Over the past decade, CalPERS has retuned 4.4 percent compared to the Standard & Poor 500’s 7.1 percent, according to Barron’s. And CalPERS "guarantees" its stock investments, meaning that if returns don’t come in, it is up to cities to bridge the gap and make up for any losses. “There’s no question the amount of unfunded liabilities have gone up dramatically and that’s because CalPERS hasn’t been getting the returns,” said Baum. 

The city has tried to mitigate the pension debt by creating a Prioritizing Unfunded Liabilities Liquidation (PULL) investment fund. It’s an irrevocable trust account that can only be spent on pensions, Baum says. So far, the city has about $14 million in PULL – which is equivalent to just about one year of pension costs. The exact amount that will be put in the PULL account this fiscal year will be determined by the City Council over the next few months. They will meet in a budget work session on April 9 and the final budget will be adopted in June. Baum said the minimum amount they’ll put in PULL this fiscal year is $750,000 and he estimates the actual figure will be around $2 million. 

Baum recently gave the City Council a preliminary budget presentation which showed that the city’s budget will be almost $5 million in the red this fiscal year, with $108 million in revenue and about $113 million in expenditures. Salaries and benefits make up almost half of the city’s budget ($51 million this fiscal year). The city’s budget is at a deficit despite an additional $10 million boost that the city collects from the Measure HH sales tax that began in 2015. That raised general fund revenue from $95 million to $105 million in the 2015/2016 fiscal year. 

But employee salaries have risen by nearly $10 million in the past two years. The city will be paying $51.5 million in salaries this fiscal year, compared to $42 million in 2015-2016. And salary costs will rise another $3 million in the next fiscal year, according to Baum’s budget presentation. Police and fire expenditures account for 56 percent of the city’s general fund expenditures (over $65 million dollars). Baum said that’s about average for any city. But back when Vallejo was about to go bankrupt, that city was devoting 80 percent of its budget to public safety.

In San Leandro the average annual cost to the city for a sworn police officer is $270,000, which includes salaries and benefits. That’s double other city employees, whose average salary and benefit cost is $130,000. Baum agrees that pensions will be a huge issue for San Leandro and other municipalities. He said one partial solution will be for the city to keep the number of employees as low as possible. He said there are currently 435 full-time equivalent positions at the city, compared to 500 a decade ago.

“One solution is to decrease the employee count at the city, but you can’t do that forever,” said Baum. “If pension costs are squeezing service, you have to figure out what to prioritize. It’s going to be a challenge.”


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