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step and merit increases were premature

Ventura’s Imperfect Evaluation On Step And Merit Increases

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Confucius on Ventura's step and merit increases

“The man who asks a question is a fool for a minute, the man who does not ask is a fool for life.”

—Confucius

Time will tell if Ventura made a good choice with step and merit increases

No one makes a lifetime commitment based on a single moment in time. Yet, the Ventura City Council made just such a commitment. In November 2020, they awarded step and merit increases to city employees based on revised sales tax figures. This decision is disturbing on several levels:

  1. The city staff led the Council to believe financial conditions were improving based on very short-term statistics.
  2. The people benefiting from the salary increases were the ones making the recommendation.
  3. Our elected officials failed to question the rosy picture the staff presented during the pandemic economic shutdown.

How Did We Get Here?

In the city’s fiscal year 2020-2021, the Ventura City Council faced a $12.0 million budget deficit due to California’s coronavirus shutdown. The city staff recommended a dozen possible solutions to the problem. Among them was the option to ‘defer’ $1 million in employee salary increases for step and merit increases until financial conditions improved.

As a provision of the FY2020-21 budget, former-Mayor Matt LaVere, the City Council and all the bargaining units agreed to freeze employee step and merit increases as a down payment on the massive reductions necessary in the year ahead.

Mid-Course Correction

The City Council receives regular updates on sales tax revenue collected. These reports include recent figures and may also include projections based on current trends. The updates are very short-term, especially in the early part of the fiscal year. Predictions made from these limited data may seem overly optimistic. Any upward trend tempts city staff and the Council to overreact. Past City Councils have been guilty of spending money from these projections because they seemed ‘good.’ The tendency is to see these projections through rose-colored glasses.

Step and merit increases were part of a mid-course correction

What Was The New Projection That Justified The Step And Merit Increases?

To everyone’s surprise, the September sales tax report update was higher than anticipated. The city staff projected that General Fund would be $1.657 million higher than forecasted. The City Council seized this as the ‘green light’ to reinstate the employee step and merit increases.

At the November 9, 2020 meeting, the Council rescinded the suspended step and merit salary increases for city employees. The suspension lasted only eight months, from March to November 2020.

Was The Decision To Grant Step And Merit Increases Logical?

Awarding step and merit increases puts Ventura on thin iceThe Council made its November decision based on data presented on September 23, 2020, a month and a half earlier. The Council received no updated data on which to decide. If they had, the decision might have been different.

In a report prepared by Michael Coon, the Director of Finance & Technology, after the Council’s November 9th decision, the $1.657 million surplus became a $483K deficit.

By the January 2021 Budget Workshop presentation to the new Council, the General Fund was positive again by $264,000. Mr. Coon admitted that $264,000 is a slim margin on a $116 million budget (0.2%).

What’s Happening With The General Fund?

The $1.657 million General Fund surplus presented in September 2020 was misleading. Yes, sales tax revenue was higher, but that didn’t account for the excess. Two unique, one-time events inflated the figures.

The General Fund received $2.0 million from the CARES Act funding. The city also received a donation from the Marion Schwab Trust.

Without these two rare revenue infusions, the city would have had $2.4 million less revenue than the city staff led the Council to believe when deciding to award the step and merit increases.

What’s more, on September 24, 2020, the city staff failed to mention the City Council’s risks to the General Fund. Player’s Casino Card Room sales taxes, parking violations, and Parks & Recreation programming were below budget. Mr. Coon’s November 2020 report shows revenue fell more than $5.2 million below budget in those three areas.

The Result Of Their Actions On Raises

In June, Councilmember Jim Friedman warned of an “absolute financial disaster” in the coming years if the city doesn’t continue to cut spending. Yet, the City Council reversed their earlier spending restraint and awarded over $719,000 in pay increases to city employees.

In June 2020, City Manager Alex McIntyre spoke of “shared sacrifice” when announcing the step and merit increases. Today, thousands of Ventura residents are not working. And those private-sector workers that remain employed may experience outright cuts in their pay and hours. Scores of businesses are closed by the pandemic and face bankruptcy. At City Hall, where jobs and salaries are guaranteed, things look very different, however.

What Can We Do?

Every budget cycle, the city goes through the same experience. The budget process begins in January and ends in June for the following year’s budget. Each year, the city staff presents their best estimate of what next year will bring. Often, those Staff recommended step and merit increases and the Council followed like chickens with their heads cut offestimates are optimistic. “We believe we’re conservative not to paint too bleak a picture,” Mr. Coon told the City Council on January 11, 2021. And, our City Council makes long-term decisions based on the short-term data they receive.

Staff isn’t always right. No one has examined the budgeting process for a long time. Periodically, it would be a good idea to have independent, outside consultants provide an unbiased analysis of Ventura’s budgeting. This evaluation should be different from the accountant’s review of the Comprehensive Annual Financial Report (CAFR), which is always 18 months in arrears.

Editors Comments

We believe the City Council made the November decision to award the step and merit increases on flawed forecasts from staff. The City Council accepted the General Fund revenue would be $1.657 million higher in the middle of a pandemic. The Council decided based on a September bump in the sales tax revenue for the first four months of the fiscal year 2020-21. And, the data didn’t include the all-important Christmas season sales tax revenue. The Council made long-term decisions based primarily on short-term data.

Step and merit increases were justified by improved sales tax revenueIt seems clear that city staff provided fluid, optimistic data to the Council for their decision. Mr. Coon explained the projections, saying, “We are feeling alright with the additional projection of $1.5 million in Sales Tax for the current fiscal year. It is something that we definitely want to keep an eye on, especially if we start to see more businesses close.

“Currently, we are basically projecting that we will receive the same amount of Sales Tax this fiscal year that we received last fiscal year…the city would have received about $30 million in sales tax for FY 20-21 without the pandemic. So, the projections do factor in about a 10% decline from the activity that was seen in Jul-Dec 2019. This decline isn’t on the higher end because online sales tax collection is doing so well and offsetting the losses of some of the brick and mortar stores that are experiencing losses at the higher end of the spectrum.”

At a higher level, citizens should be concerned about this process. The same people who prepare the reports used to decide salary increases are the same people who get the raises.

Our concern isn’t with the exact budget numbers. We question using numbers provided by the very people who enjoy the increases. We also have reservations about the Council relying on unseasoned numbers over time.

And, we’re disappointed by the elected officials that failed to question staff’s rosy projections when we’re in the middle of a pandemic. There were variations in the General Fund projections from September 2020 to November 2020 to January 2021. Two different City Councils spanned that period. One would have hoped that at least one Councilmember would have remarked on the General Fund’s changes from positive to negative and back to slightly positive over that time. Yet, no one did.

Only four Councilmembers remain from the group that awarded the increases. They are Lorrie Brown, Jim Friedman, Erik Nasarenko and Sofia Rubalcava. At the January 2021 budget workshop, two Councilmembers (Ms. Brown and newcomer Mike Johnson) expressed concern about the COVID-19 impact on the city’s finances. One wonders why the other five didn’t share the same anxiety. We hope that the new Council will be more rigorous in asking questions when preparing next year’s budget.

Write Directly To Your City Councilmember To Insist They Ask More Insightful Questions During Budgeting

Below you’ll find the photos of our current City Council. Click on any Councilmember’s photo and you’ll open your email program ready to write directly to that Councilmember.

Sofia Rubalcava voted for step and merit increases Doug Halter wasn't on the Council when they voted for step and merit increases
Mike Johnson wasn't on the Council when they voted for step and merit increases Erik Nasarenko voted for step and merit increases
Jim Friedman voted for step and merit increases Lorrie Brown voted for step and merit increases
Joe Schroeder wasn't on the Council when they voted for step and merit increases

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Government tax burden

No New Tax Will Make Up for Lost Investments and Bad Management

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“A government big enough to give you everything you want, is big enough to take away everything you have.”   —Thomas Jefferson

THE VENTURA BUDGET CRUNCH

[SEND IN THE CLOWNS]

“Clowns to the Left of me, Jokers to the Right, here I am, stuck in the middle with you.”—Stealer’s Wheel (Joe Egan & Gerry Rafferty)

On January 24, 2009, at 8am the City of Ventura held a special meeting at the Police/ Fire Department community room with the full City Council to discuss the city budget.  This  “public hearing” was on a Saturday and was not televised. The usual coterie was present.  The other half of the room was occupied by City personnel.

Once the current budget figures were shared with the audience, reflecting a lower projected income  of $83 million. City Manager, Rick Cole stated, “if we must, we can run this government on $83 million.”.  The projected  deficit was $12,000,000.

THE GOVERNMENT THREE STEP

[Tea Party anyone?]

First, steps forth our fine State legislature, which seeks more tax money from the citizens, with a quadruple  whammy:

  1. Raising the Sales Tax by 1%
  2. Doubling DMV registration
  3. Reducing the dependent tax credits
  4. Increasing personal state income tax by  .125%.

If you want to follow the bouncing tax ball visit the calculator on The Sacramento Bee web site to see how much more you will have to pay, if all of the proposed tax increases pass.  Fill in a few figures and voila – your new tax burden.

Here is our projection of the impact on the citizens of Ventura.   Assume 70,000 Ventura Households, an average annual income of $75,000 and that our city projects tax revenue of $7,000,000 of every increase of ½% in tax.

Cost to Ventura Citizens

State Sales Tax Increase (1%) $14,000,000
DMV 50% increase ($160 average x 2.5 cars per household x 70,000) $28,000,000
Additional Income tax ($140 per 70,000 households) $9,800,000
Loss in dependent tax credits (2 children per household) $29,400,000
Total $81,200,000
Cost per Ventura household (Total divided by 70,000 households) $1,160

Second, steps forth the City of Ventura with the local version of the sales tax.  A proposal to add ½% to raise our local rate to 7.75% from 7.25%. (Don’t’ forget the State has already added 1%, so it will be a  9.75% sales tax, if Ventura voters approve the local measure)

Ventura’s 1/2 percent sales tax $7,000,000

Now steps forth the Ventura Unified School, which is considering a real property Parcel Tax on City of Ventura residences and real property to cover their budget deficit.

Parcel Tax ($200 per parcel times 32,000 parcels $6,400,000
Recap of TOTAL PROPOSED NEW HOUSEHOLD TAXES $94,600,000
Cost per year per Ventura household in new taxes (State, City, VUSD) $1,351

A NEW TAX — THE PATH OF LEAST RESISTANCE

[The City Council with rose colored glasses]

The Ventura Unified School District (VUSD) has worked out alternative budgets that will get them through this financial crisis. With careful management, over the next two years, The VUSD can adjust and reduce expenditures by $20,108,500, making the need for a new property (parcel) tax unnecessary. Some members of the School Districts Budget Advisory Committee are thinking that it is just  easier to just get more funds from the general public in the form of a new property tax.

The City of Ventura is pursuing its own path to financial Armageddon.  Facing a $12,000,000 deficit, because income will only be $84,000,000 against expenses of $96,000,000 (they project and hope), the City manger is realistically seeking and trying to operate within the existing revenues by reducing staff and expenses.  An effort to be applauded, given the specter of five years of depression.

On the other hand the City Council has other ideas — save this fireman’s benefit, this policeman’s job, the library, the arts, the homeless etc. — programs unrelated to essential governmental functions, which they lavishly funded, and pay scales they generously promised to pay between 2003 and 2007, when our elected officials knew we did not have the money for such increases. ( See 2003 Budget Report, Donna Landeros, City Manger, Economic Overview)

The temptation to resort to the citizens and seek new taxes seems to be the politicians path of least resistance at all levels of government.  Ventura is no different.  What if instead those programs were eliminated and pay and benefits were modified , so as to allow the government to operate within their existing  tax income?   While workers in the private sector are cutting expenses, laying staff off, not funding 401K matches and eliminating raises, the public sector seem to feel they are immune from economic realities and seek more money from YOU.

Editors’ comments:

What say you, citizens of Ventura? At what point does living within our means and going back to the basics really take affect? If this is the worst economic crisis since the “Great Depression” or “World War II”, at what point does government start reducing programs and staff to only provide the necessities that only city government  should provide? Or, that only state government should provide? As long as there are economic constituencies (public employees) within government who define their own job description, bargain and politicize through unions their own pay and benefits, the citizenry will always be in danger.

CONTINUED PROBLEMS ADD TO FINANCIAL DEFICIT

While the City seems proud that it only lost $10 million in investments in 2008, they defend their loss by comparing the loss to the average citizen’s 401K losses.   Hardly a realistic comparison given that the investment policy for a municipality is  and should be much be more conservative and  restrictive.  Some at the City makes it sound as if it is heresy to suggest that they should not have lost anything.

The City Attorney on the other hand  is crying “fraud” on the part of Lehman Brother and WaMu — a distraction away from the real issue. None of the four members of the Investment Committee have investment licenses,  nor the experience and qualifications to oversee a $200 million portfolio in this current financial market. Months before the Lehman and WaMu  debacle,  the City had a prior warning of problems due to  a potential  $10 million loss they had invested with Bear Stearns.  It turned out that the Bear Sterns was acquired by JP Morgan and thus avoided bankruptcy, however at this writing we do not know how much JP Morgan is willing to pay the City of Ventura on that investment.

It is easy to raise taxes and bury our heads in the sand. It is difficult to make the tough decisions that will avoid a future disaster but we have reached the point of critical mass. The City is under funded in its pension plan by over $60 million as of 2007, which is exacerbated by the 52% drop in value of  the pension fund investments by CalPERS, the pension investment manger for Ventura. Over $362 million (Page 70 of the Comprehensive Annual Financial Report, page 102 of the PDF) is owed in future pensions and this amount is growing each year.

EDITORS’ COMMENTS

If we can’t sit back, inject humor and laugh in these hard economic times it has  truly become a” foul wind.” Hope you enjoy the humor of this.

In this current economic crisis, we had to reduce our staff. We had no laternative. RANDY HAS TO GO !

Editors:

B. Alviani         S. Doll           J. Tingstrom

K. Corse           R. McCord    T. Cook

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