As immediate past mayor, residents have asked me what I think about the state of city finances as extensively presented in “A St. Helena Update” (St. Helena Star, Nov. 14). The various initiatives discussed in the Update were substantially underway, and indeed with respect to financial policy revisions largely completed, during my time as mayor (2014-18). This allows me to provide informed comment.
1. In early 2015 then new city management surfaced the FEMA refund debacle. In immediate response, the City Council required that all City payments of $100,000 or more be reported quarterly to the City Council. Thus, it is not correct to state that the City did not “formalize internal financial controls” to avoid a repeat of the non-timely FEMA refund disclosure before 2017. This happened right after I became mayor.
But the effort did not stop there. Perhaps my earliest action as mayor was to cause a change in public auditors. The City Council agreed that we needed fresh insight into the efficacy of our internal controls, with recommendations from a new auditor. New City staff was in complete agreement. In response, City financial staff, with the full support of the City Council, undertook a complete review and revision of the multitude of City financial policies. I carefully reviewed drafts, with modest comments, as also did now vice-mayor Paul Dohring. The revision of these policies was time-consuming, and fundamentally the product of dedicated and excellent City financial staff. The work was substantially completed during my two terms as mayor. This was no small accomplishment for which 2014-2018 City staff deserves our gratitude.
2. The City Update cites a diagnostic tool that generally advised that St. Helena (strictly General Fund only, not the Water and Wastewater Enterprises) was “financially healthy” but noted concerns relating to current asset conditions (in my mind, city buildings, downtown sidewalks, neighborhood roads, storm drains, inadequately maintained parks, and other infrastructure). In our case the “concerns” overwhelm the good news. Take the Library with its leaking roof, requiring large dollars for full repair. Would a homeowner tout money in his/her checking account when the roof of the house requires costly repair?
If we did not have large “deferred maintenance” (a term I dislike because it demeans and obscures the urgency of current repair needs), then it would be fair to promote the City’s reserve position. But it is not right to claim good financial condition when costly yet mostly not quantified infrastructure shortfalls exist and are incapable of being timely addressed.
3. The Update cites the current General Fund Reserves (an estimated 53% at June 30, 2019), and states that this represents “a level of stability not enjoyed by many other cities anywhere.” While this sound great, it means little in the context of the immediate infrastructure (see point 2) and non-infrastructure (e.g., rising public safety) costs that the City faces. To repeat: a city that has allowed its capital expenditure requirements to far exceed what it can address, and also knows that its operating costs are rising rapidly, is not in a position to take solace from an operating reserve that is almost de minimums in relationship to these needs.
4. PERS (unfunded pension liability for past service): The Update claims that the City has been “proactive” in relation to its PERS liability and has “very little debt.” To the contrary, although the City Council has agreed to a more aggressive pay-off schedule for the City’s significant PERS liability (around $15 million), it remains a significant burden on its balance sheet. This is concerning because it is deferring a current obligation for payment to future taxpayers – which also impacts materially affordability in our City for future residents. Underlying point: it is not right to tout current City reserves when, among other issues, there is a significant PERS liability for past service.
You have free articles remaining.
Let me further clarify: I emphatically reject the justification that our City’s position may be less difficult than many municipalities. This “exculpatory” excuse in no way mitigates our own liability for failure to run our City on a sound pay-as-you go basis. (Also, if the City did not have this large accumulated liability, it would have the current ability to build and maintain a much-needed new City Hall!) This is no different from my convincing my law partners, to the dismay of several, that we should amortize an unexpected pension liability in our defined benefit plans in a short period (five years), in keeping with our “pay as you go” financing principle.
5. Our Water and Sewer Enterprises, sadly, are not in good operating condition, as specifically required by bond covenants. Further, given the current escalation in both construction and associated soft costs (as set forth in the recent report documenting the daunting costs of replacing or renovating City buildings), it seems apparent that current rates are woefully insufficient to address mandatory upgrades, as required by clear well-documented infrastructure needs (e. g., rehabilitation of Water Tank Two, replacement of the City-owned Meadowood tanks, further replacement/rehabilitation of the water pipeline from Rutherford to the City), litigation settlements (e.g., with Water Audit California) and, in the case of the Wastewater Enterprise, improvements dictated in accordance with a timeline in a Cease and Desist Order.
The City Update states the Enterprises have “many options such as rates, bonds, and grant funding opportunities.” To my knowledge, the City has presented (1) no current estimate of the increased costs (over those estimated in the last now wildly out-of-date rate study) of improvements to meet legal, regulatory settlement, and other compelling capital needs (2) the financial capability of the Enterprises, at current or projected rate levels, to obtain new bonding while meeting the bond-required net revenue requirements, and (3) the potential availability of the City, in a highly competitive grant market, to obtain grant funding, especially difficult for small scale systems like ours. Personally, I am skeptical as to (2) & (3), hopefully too pessimistic though I do not think so. The crucial point is that the Update provides no factual basis for believing that Enterprise ratepayers are likely to receive material financial support from outside sources. The alternative is significant rate increases, very hard on our lower income residents – and in my mind should be substantially offset by more generous General Fund subsidies – which of course depletes funds for other worthwhile projects requiring General Fund funding.
6. A critical omission in the Update is failure to mention the Long Range Financial Forecast (“LRFF”). This is surprising because the City in its Council-approved response to the Grand Jury Report rightly stressed the value of the LRFF as a financial forecast tool. During my tenure, the City Council ensured that the LRFF was timely updated. I am hopeful that the City will continue to do so. I am confident that that the next LRFF update will further validate the observations in this City Update response. My further suggestion is that it be broadened to include not just General Fund operations but separately the Water and Wastewater Enterprises too. This will provide an early warning of the rate increases we are likely to face to address their long-standing, expensive infrastructure needs.
7. Also unaddressed is whether the City has the ability, and if so the extent thereof, to leverage City assets to raise through City owned assets (belonging to the City and not the Enterprises) the capital to meet the daunting building and infrastructure (non-Enterprise) needs of the City. As I have said many times, the answer, especially if the City has assets that can be leveraged, is not in new taxes. They will not pass.
8. There is a strong, almost overpowering, tendency in city government to minimize, even suppress, public understanding of necessitous expenditures, as current revenue does not exist to pay for them. This is short sighted. My own view is that the City, with respect to the General Fund and each of the two Enterprise funds (Water and Sewer) should present an unvarnished view of its operating and capital needs and the revenue, or absence thereof, to meet their respective needs.
9. Final thought: Enterprise (Water & Sewer) customers soon face significant rate increases. Taxpayers, if unwilling to leverage City assets and also opposed to new taxes, will find a city unable to continue current level of beloved services. These are not happy outcomes.