Advisers Set City Council on Prudent Fiscal Path

The City Council has moved forward with a number of recommendations courtesy of the advisers to the strategic financial planning committee, tentatively setting the tone for how the city will start to approach its operational and capital expenses.
In a series of decisions made at Friday’s study session, the City Council has directed the city to maintain a fund reserve of 40% of the city’s operating revenue for the fiscal year and to commit any extra funds to a capital expense fund; to pay only its minimum required contribution toward the CalPERS (California Public Employees Retirement System) pension liability; to prepare a multi-year capital spending plan and to complete a condition assessment of San Marino’s sewers, sidewalks and facilities.
Once the condition assessments are complete (the assessment for the city’s roads already has been done), the City Council plans to revisit the recommendation to appropriate $3.5 million annually for the next 14 years to address the backlog of capital infrastructure projects. In the meantime, city staff will explore outside funding options to supplement city money.
“We should not move forward on a major infrastructure program beyond a couple of years, primarily because we wouldn’t know how to fund it,” Mayor Steve Talt said. “I’d hate to get one third of the way through the program and suddenly run out of money.”
Under the new direction, the city’s budget for fiscal year 2018-19 will divide the present reserve fund balance of around $24.2 million — $11 million will remain in the reserves and the $13.2 million will be dedicated to capital expenses. This effectively frontloads several years’ worth of the recommended annual expenses for capital improvements, but it remains unclear what would be sacrificed in the future to accommodate that.
Also troublesome to the city is that the Public Safety Property Tax ends after 2020 and is renewable at the discretion of voters. It currently adds around $3 million in revenue for the city each year.
“It is frightening to know that, with the loss of these revenues, the city could be operating in the red,” Talt said.
Resident Jay Goldstone, who was one of several community advisers to this committee, presented the recommendations at this meeting. The advisers reported to Vice Mayor Dr. Steven Huang and Councilman Ken Ude, and also worked with City Manager Marcella Marlowe, Finance Director Josh Betta and City Treasurer Annie Han.
Goldstone highlighted the city’s current fund reserves — nearly a full year’s expenses — are in the bank account, which is a good starting point.
“That’s probably the envy of any other public agency in the state of California,” he said. “The more stable your revenue stream, probably the lower your reserves can be and still be comfortable.
“The big hit is going to be when the public safety tax goes away,” Goldstone later added, “but aside from that, San Marino has been pretty stable.”
Ude, who had been slated to be one of the community advisers when he was elected in November, acknowledged that although the city was sitting on a substantial amount of reserve money, it appeared to have come at the expense of the city’s health.
“We’re probably in better financial shape than other cities around, but the reality of our situation is significant,” he said, adding it was “negligent” to build reserves while ignoring infrastructure. “That type of behavior is something we have to change, and I think it’s going to negatively affect other services the city provides to get us on the necessary diet to enact that change.”
Huang, calling the pension liability with CalPERS a “black hole,” pointed out San Marino is struggling for a clear answer even with so much money in the bank. At the state’s estimate, the city is currently on the hook for more than $28 million, although other evaluations place that much higher.
“This huge monster is just detrimental to our city,” Huang said. “The more money we put in there, the more money we lose. If we have a lot of problems ahead of us, I don’t understand how a lot of other cities are going to survive.”
Ude said he hopes to find a way to shave $2 million in expenses from the forthcoming budget year, the planning of which is slated to begin now that this report has been presented. This seems like a precedent he’d like to set as soon as possible, given his description of the infrastructure issues as “a root canal that is not going away” unless they invest heavily moving forward.

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