the gadfather presents:
The Budget crisis
By Paul "The Gadfather" Norberg (12/22/07) Retired CFO
We have been hearing about Vallejoís budget crisis for
the past several years. Every year
the city prepares a balanced general fund budget, but planned savings never seem
to materialize. We started out at
6/30/05 with a $9.8 million surplus. By
6/30/06 it declined to $7.7 million and at 6/30/07 was down to $4.2 million.
The current projection for 6/30/08 is a deficit of $1.1 million leaving
the city unable to pay its bills and bankruptcy a real possibility.
What is causing the problem? Revenue has remained relatively flat for the past three years
around $82 million, while expenses continue to increase.
The current housing crisis compounds the problem with declining property
values and no new construction to generate fees that have been a large part of
the revenue stream. Salaries and benefits for all city employees make up 94% of
the general fund budget and those costs are governed by labor union contracts
that donít expire until 6/30/2010. In
fiscal year 6/30/06 salaries and benefits were $66 million. In fiscal 6/30/07 they increased to $72 million and are now
projected to be $78 million for fiscal 6/30/08. In fiscal 6/30/09 they increase to $82 million and by 6/30/10
will be $86 million. In 2009 and
2010 salaries and benefits alone will equal the entire projected income leaving
the city with deficits of $10 and $11 million each year.
Vallejoís public safety employees are among the highest
paid in the bay area. A recent
analysis by Rob Stout the city Finance Director showed that Vallejo spends 68.7%
of the general fund on police and fire while the 13 comparable cities used to
set salaries spend only 51.5%. This 17.2% differential equates to $14 million
and that money would more than balance the budget and provide needed funds for
street repairs and other community services.
Vallejo already spends significantly less on Public Works and Community
Service than the comparable cities, so further cuts in those areas only make
Vallejo a worse place to live.
The city has tried to renegotiate the contracts but the
unions have demanded contract extensions which further compound the problem.
In 2007 the city went to binding arbitration to reduce four positions in
the fire department, but the arbitrator ruled with the union and the money had
to be reinstated in the budget.
Several suggestions have been made to sell off assets or
transfer money from other funds to the general fund. Asset sales are one time events and donít fix the
structural deficits. Transfers from
other funds are for the most part illegal as those funds are earmarked for
specific purposes and canít be used to make up general fund shortages.
We hope our new Mayor and Council will be able to sit down
with the unions and obtain meaningful concessions without extending the current
contracts. If this doesnít
happen, bankruptcy seems the only alternative.
It makes no sense to have long term union contracts when the city has no
assurance that the revenue needed to fulfill those contracts will ever
The complete budget update is included in the city council agenda for 12/18/07 and is available for all to read on the city web site. The budget summary is here.