A Lot of Pencil Sharpening, But Not Too Much Erasing: A Commentary on the Proposed Elk Grove FY 2020-21 Budget



By D.J. Blutarsky |  

You could say that the COVID pandemic has finally brought a dose of reality to the City Hall budget.  But in reality, the economy was slowing anyway, and what I would loosely describe as the free-wheeling spending habits of the City Council may have finally been forced to make a soft landing for now at least. The proposed Fiscal Year 2020-21 (FY20-21) budget has been released by the City and upon close examination, it reveals some interesting insight.


5-Year Revenue Forecast

The City has been using a 5-year budget forecast for the past few years as a way to help put each annual budget in a better context. In the current year, the budget painted a pretty rosy revenue scenario--revenues steadily increasing each year from $75.2 million in the current year to $89.1 million in the year 2024. The latest FY 20-21 budget now dims that rosy scenario to $81.7 million in 2024.  

2020-21 Revenue Forecast

The current budget estimated 2020-21 total revenues to be $77.5 million. The proposed budget now estimates revenues to be only $74.5 million. Sales tax revenue, which represents about 34% of total revenue, was projected to be $28.7 million, but will now only be $25.7 and projected to decline further as the year progresses.

Since city budgets are required by law to be balanced, let's dig a little deeper and see where the cuts will be made, and where the cuts won't be made.

Salaries 

Salaries and benefits represent about 68% of the total budget expenditures. The City Manager has stated that he will not fill vacant positions in 2020-21. That move will save about $1 million in the next year. Yet, salaries will still increase from $28.8 million to $31.7 million, primarily due to the Police union labor contract.  The Police Department cost is roughly 68 percent of the total City budget.  

While the City's sales tax consultant projects further revenue reductions, there should be a general discussion of what the mid-year contingency plan might be if revenues further decline significantly.  For example, are furloughs, benefit reductions, the 3% City-match to deferred compensation plans, etc. on the table? Simply relying on the reserve fund to make up the shortfall will not get to the issue of whether Elk Grove's salary and benefit package is too generous and whether staffing levels are appropriate.

Staffing Levels

In 2015, the City had 301 authorized staff positions. By 2019, the number of positions had grown to 369; and in the proposed budget, the number of authorized positions increases by another 26 to 395.  From 2015 to 2019, the City's population increased about 5%, yet the staffing levels during that period increased by 22%.

Granted, you cannot use population growth as the sole indicator of proper staffing levels, but I am not aware of any comprehensive analysis the City has ever done to determine the appropriate staffing levels for a City of Elk Grove's size. "Right-sizing" a public sector agency is periodically needed to identify the optimum taxpayer cost-benefit levels of service for each department function.  After all, unchecked, bureaucracies tend to grow over time and become more bloated. 

While the City Manager proposes to freeze hiring of current vacant positions in FY 2020, the budget nevertheless proposes authorizing 26 additional positions for future hiring.  

The winners: Community Center attendants (6 part-time); City Attorney (part-time legal assistant); Finance (one Sr. GIS assistant); Human Resources (one HR Specialist);  Development Services (one Code enforcement officer); Public Works (14 new positions); and Police (4 officers, 2 Property/Evidence Techs, one Sr. Admin Analyst, one Real-Time information Center Supervisor, and 4 part-time police technicians) (pgs. 298-301).

Regardless of whether the City funds the new positions this year or not, it is time to provide the taxpayers with a comprehensive, independent, and transparent staffing level analysis for each department. 

Debt Service

The City Council has authorized issuance of lease revenue bonds which require annual bond payments. We may disagree on the merits of those projects, but the proposed budget is a convenient way to review those projects for which the City Council felt was necessary to build with borrowed money.  

Animal Shelter and Parkland Acquisition:  $1.3 million annual debt service; $224,410 deficit FY2020

District56 Nature Area and Old Town Plaza: $10.5 million annual debt service

Special Waste Collection Center: $1.0 million annual debt service

Laguna Palms City Hall Campus: $586,341 annual debt service. Agenda item on 6/10/20 CC agenda to spend $360,000 to repair water leak

Property Tax Assessment Increases

On May 27th, the City Council approved annual tax levy increases for each of the seven Community Facilities Districts (CFD) which encompass most areas of the City. While the May 27th staff report included the actual assessment increase amount, most property owners would be dismayed if they are not already aware that the total tax assessments can be upwards of $4,500 per year on top of their property tax. 

The key note on page 7 of the May 27th staff report was, "... the expectation is that the tax levy needed to balance the growing expenditures will require the levy to be set at the 100% maximum level at some point in the future. The goal will be to gradually increase the levy to align the growth of expenditures and avoid a sudden escalation of the tax levy."

Just for information, out of the kindness of their hearts, the City Council has been picking up the tab for the following CFD annual deficits. At some points, the tab will be handed to you!

Laguna Ridge CFD 2005-1 ($4.0 million shortfall)
East Franklin CFD 2002-1 ($699,629 shortfall )
Poppy Ridge CFD 2003-1 ($310,498 shortfall)

Conclusion:

I view the proposed budget as cutting out some fluff (travel, unfilled positions) to make it through at least the middle of the next budget year (January), and then seeing where the revenues are at. Up until that time, the cuts will be relatively painless to City Hall operations and staff.  

In January, I would want to see how Elk Grove stacks up in terms of organizational efficiency, salaries, and benefits, and to what degree any further revenue reductions will be covered by the reserve fund instead of doing a critical top-to-bottom organizational analysis. Anything short of this is kicking the can down the road and hoping to buy our way out of it on the revenue side of the equation. It is time for a structural review of City Hall.

Copyright by Elk Grove News © 2020. All right reserved.










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