SM Tweaks Budget as Deadline Approaches

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After going over an updated budget proposal for the 2017-18 fiscal year, the City Council has asked for some additional changes to contain some expenditures before it votes to adopt the budget.
Its next meeting, on Friday, June 30, will be its final chance to approve the $29 million budget before the next fiscal year begins the following day. Interim City Manager Cindy Collins and Misty Cheng, whose firm is handling the city’s finances on an interim basis, will hash out the changes — which include payment amounts to the city’s unfunded pension liability — before that meeting.
The tentative vote will cap off an exhaustive zero-based budgeting process, in which each department essentially started from scratch and thoroughly looked at past line item expenses to formulate their proposals.
“It takes hours and hours, if not weeks, having each department head go through this with their staff,” Cheng explained in an interview following the City Council’s Wednesday, June 14, meeting. “Most cities do it every year. Some do it every two years. I’m happy with the process because this is what I’m used to doing with other cities.”
The updated budget presented at this meeting had been modified from its original presentation in May. The clearest result of the changes was reflected in what will (hopefully) be added to reserves as surplus revenue — $111,918, up from what was originally $80,937.
Councilman Steve Talt came to the meeting prepared with a laundry list of questions and requested changes to the budget, in the interest of redirecting money toward capital improvement projects or outright saving it.
Near the top of his — and others’ — list was the city’s payment toward its pension liability, which was most recently estimated to be more than $20 million. The city had considered adopting a 20-year amortization plan to pay down the liability (as opposed to 30 years), which would involve higher regular payments, but address the issue more quickly.
“But right now, it seems like we’re putting money in a rat hole on paying in advance when indeed that program isn’t structured to get us the type of benefit that was intended when it originally passed,” Talt said.
Based on projections and assuming the regular payments stay the same, the savings resulting from a 20-year plan over a 30-year plan would be $298,920, which the City Council considered negligible when compared to how aggressive a 20-year plan is.
The cause for that is because the 30-year plan has options of a monthly payment or annual lump sum payment, the latter of which costs less on a per-year basis. The 20-year plan can only be accomplished with monthly payments, which, similarly to debt service financing, are more expensive than lump sum payments thanks to interest.
“I would expect a 20-year amortization to save a lot more,” Vice Mayor Richard Ward said.
“Not with a monthly payment,” Talt responded. “That’s how Visa and Mastercard and American Express remain in business.”
The City Council-preferred lump sum payment on the 30-year plan costs $1.172 million annually, which is $246,473 less than what the city has paid annually in recent years. This plan also was popular with audience members, who echoed Talt’s desire to go with this system until a long-term financial planning ad hoc committee is convened and makes a recommendation.
“In the meantime,” Talt said, “we’re able to save a substantial amount of money and use that to improve our infrastructure, which if we don’t do that is going to cost us more money in the long run.”
An assessment earlier this year by Public Works Director and City Engineer Dan Wall detailed an extensive list of maintenance, repairs or replacements that are required for the city’s infrastructure and also included a “wish list” of annual funding to more quickly address those issues. The longer it takes to fund those projects, Wall said, the more money it will cost in the long run.
Other budgetary tweaks being considered include modifications to projected overtime, in light of changing City Hall hours, and taking another look at departmental line items for “miscellaneous” expenses, at which Talt bristled.
As for the financial planning ad hoc committee, Collins said the city has received at least eight applications to be on the advisory group and she plans to begin interviewing people on July 5. The group — which also will include Cheng, Collins and City Treasurer Marina Wang — will make recommendations to Mayor Dr. Richard Sun and Councilman Dr. Steven Huang.
“We’re in motion,” Collin said.

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