Voices of Elk Grove: Is the CCHC Really a Good Deal?

By Bob Felts One of Elk Grove's published City Council goals in the City's FY 2011-12 Work Plan is: "Serve as wise, responsib...

By Bob Felts

One of Elk Grove's published City Council goals in the City's FY 2011-12 Work Plan is: "Serve as wise, responsible stewards of fiscal resources." One must wonder how this translates to giving away incentive money and loans to various business entities when the Return on Investment (ROI) of such money outlays when doing so has caused our budget reserve to be reduced so drastically.

After the well-publicized "coup" with the California Correctional Health Care Services was announced, Mayor Steve Detrick was quoted as saying, "We're knocking on the door, and we have money in our wallet to help bring you down here."

Is this the same Elk Grove of 3 years back? And where did the all the money come from? Guess what, folks? It came from our General Fund Reserve, dropping it below a policy-stated minimum of 15% for the first time ever. Even worse, Ms. Gill states in the Annual 2011-2012 budget:

1) “The current five-year forecast for the General Fund suggests that a combination of slow-growing revenues and the implementation of a step play plan system in FY 2011-12 (more on this mistake later) will expose the City to a cumulative deficit of $16 million.” (p.5)

2) “Reserve balances are not adequate to weather the slow recovery of property tax revenues through the forecast period, as expenditures will quickly outpace revenues.” (p.5)

3) “The final three years of the projection show an outstanding deficit that, unless addressed, indicate an unsustainable structure.” (p.15)

Can she be clearer than that?

2012 election hype has already begun. Before marking the ballots in 2012, those favoring Detrick for re-election should consider his irresponsible, inaccurate public comments about Elk Grove's "wallet," some of the Council's recent monetary decisions since he’s been Mayor, and the city’s willingness to bed down with developers in a financial, symbiotic & cozy relationship (especially Pappas Investments).

Our old friend Leary was verbally blasted for association with developers, but we now have, as Yogi Berra said, “Déjà vu all over again.” Pappas’ receipt of $1.4 million from Elk Grove to compensate them for "reduced rents," plus another $1.5 million to build a bridge for the CCHCS deal, smells like the huge pile of manure it actually is. Wouldn’t you think any EG developer, including Pappas Investments, would be happy to get any rent at all, reduced or not, for empty office space with zero income? But no, Elk Grove gives the poor fellows a side bonus & pays them for a bridge—a sole source contract. Yes sir, folks, there’s even a rat in that pile of manure, and both the rat and manure were accurately smelled by the Elk Grove Police Officers Association, whose President, Dan Koontz said, “We’re trying to understand why the council voted to give money away when the return on the money isn’t there.” Bingo, Dan!

Let’s look at this deal. Detrick claims (rather optimistically) he expects increased sales tax receipts of $3 to $4 million over the next 10 years. Other estimates say it will take 20 years, but I’ll just use Detrick’s optimistic estimate for a best-case, short financial analysis:

1) NPV calculation: At 3.5% discount rate and $3.3 million initial outlay, the net present value of $400,000 extra receipts in sales taxes for each of 10 years is +$25,741.19. That’s the city’s estimated return for their investment over 10 years in present dollars. However, if we add in the $1.5 million for the bridge as part of the initial outlay, the deal loses -$1,423,534.17 over 10 years!! But we’ll have a bridge to access Pappas’ property. . .

2) Sales tax calculation: Elk Grove receives only one cent out of every 7.75 cents collected in sales tax (Budget, p.19). To receive $4 million in sales tax receipts, Elk Grove will have to collect $33,333 each month in tax receipts for the next 10 years. This means the 1500 employees will need to spend a total $3,333,333 a month in Elk Grove, or roughly $2,222 per employee per month. Huh?

Without even considering the disastrous budget effect, the above analysis shows the CCHCS deal was a gigantic blunder. The only real winners in the deal will be Pappas (total of $2.9 M and the CCHCS, $15 M savings over the next 10 years.

Other poor council decisions are the loans to St. Anton Partners (Laguna Ridge, $9,652,217) and USA Property Funds (Vintage at Laguna II, $5,600,000). These loans have now placed the Affordable Housing Fund in a 2012 forecast negative balance of ($1,810,023). In a budget with several funds already at negative balances, this is a mistake also.

Finally, it’s my opinion that Elk Grove’s eagerness to help low and very-low income people at every turn will soon have the effect of making the city a magnet for even more low-income people, as if there are not enough in Elk Grove right now. Another example of this is the increased subsidy requests by the Elk Grove Food bank, which requires more and more cash each month for operations. This kind of "welfare society" mentality is clearly what brought CA to its budgetary knees over the last 20 years, and EG will follow that same path if the Council doesn't change course and philosophy.

What we DO need is higher income people who will spend the kind of money Detrick and gang are seeking, not non-producers with little cash, no jobs and no means of income other than SS or welfare. While the CCHCS deal would appear to be a move in that direction, the subsidies EG committed to make it happen are what killed the desired result.

Bob Felts is a retired career USAF officer and 2008 candidate for the Elk Grove City Council.

The views and opinions expressed in "Voices of Elk Grove" do not necessarily represent the views of Elk Grove News or other contributors. EGN does strongly support free speech.

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