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step and merit increases were premature

Ventura’s Imperfect Evaluation On Step And Merit Increases

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

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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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Beaten Up Dollar: Deficit

The Best Thing The Council Can Do About The Deficit

History doesn’t repeat itself, but it often rhymes.”

Mark Twain

Ventura finds itself staring down another multi-million-dollar budget deficit. This time we must overcome a 10% deficit, or $12 million.

Most people’s attention won’t be on the budget because they’re focused on COVID-19 and the upheavals it has caused. The City Council will use the pandemic as a reason to make decisions they otherwise might not make. Make no mistake, however. The budget deficit existed before COVID-19 but became worse because of the economic shutdown.

Decisions by several past City Councils have brought us to today’s $12 million budget deficit. Previous Councils have not fully replenished the city’s financial reserves and have not planned for an economic downturn like the one Ventura is facing today. Now, the current City Council must find ways to make up for the lack of vision of previous Councils.

The Covid-19 Impact

The Covid-19 shutdown put hundreds of people out of work and decimated the local economy. Six of the seven Councilmembers and many of the city staff have never experienced such a dire situation. Fortunately, City Manager Alex McIntyre has. Even so, the current conditions will test his mettle.

The spotlight will be on Mr. McIntyre as Ventura moves forward after the pandemic. The burden is squarely on him to prove his effectiveness and value. The recommendations he makes—and the decisions the City Council make—will impact the city for years to come.

What Faces Ventura

Mr. McIntyre’s challenges are daunting. The local economy is in shambles. The city government and businesses will struggle to put people back to work safely and quickly. To survive the impending recession will require working closely with the city’s three unions, Fire, Police and Service Employees International Union (SEIU). And, he will have to guide an inexperienced City Council through budgeting during a recession.

Sales taxes have been severely impacted by the COVID 19 pandemic. Sales tax revenue has plummeted. The auto dealers, the casino, the Pacific View Mall and restaurants aren’t generating the taxes the city expected. They are the city’s most significant contributors to sales taxes. To make matters worse, the transit occupancy tax (TOT, or bed tax) has been non-existent.

Procedures are in place to reopen businesses, but reopening will be slow. Under the best circumstances, returning to pre-pandemic sales revenue levels will take time.

Consumers are reeling from the loss of jobs, reduced hours, and volatility in the stock market. Venturans may be reluctant to return to “normal” right away based on the experience of other people in countries that have already opened up.

A Daunting Deficit

Ventura faces a budget deficit the likes of which haven’t been seen since the 2008-2009 Great Recession. Four months ago, city staff projected the 2020-2021 budget was to be a $4.1 million deficit. In April, before the effects of the business shutdown were fully realized, the gap rose to $7.2 million. Now, the staff has revised the shortfall to be about $12 million below the projected $118.7 in revenue.

Plans To Address the Deficit

The city staff presented the City Council with 13 possible ‘tools’ to balance the budget. Seven of the 13 recommendations are personnel-related. These include:

  1. Transfer the Harbor Garage Debt to Parking Fund
  2. Hiring Freezes
  3. Reduce Employee Travel
  4. Eliminate of Cost-of-Living Adjustments (COLA)
  5. Eliminate Merit & Step Increases
  6. Reduce Support to Outside Agencies
  7. Draw from Unrestricted Fund Balance/Financial Reserves
  8. Increase Cost Sharing for Employee Benefits
  9. Reduce Benefits
  10. Furloughs/Reductions in Hours
  11. Separation Incentives (e.g., Early Retirements)
  12. Reduce or Eliminate Services
  13. Revenue Enhancements

Interestingly enough, what is missing is the ‘modification of current and future construction projects.’

Working with the Unions To Bridge The Deficit

Balancing the budget will involve cooperating with the city’s unions. There have been closed session discussions between the City Manager, Mr. McIntyre, and the union representatives.

In April, Councilmember Lori Brown reported at the Finance, Audit & Budget Committee meeting that the SEIU union rep was already circulating through City Hall. These are signs of a union anxious to defend their current status. The substance of these talks has remained private.

Hurrying City Councilmembers Up the Learning Curve

As we already described, the recovery may be slower than many would like. When confronted with a list of alternative solutions, inexperienced Councilmember might leap at the easiest, viable solution. One Councilmember seems to lean towards using all of the city’s financial reserves. While no one considers using up the city’s financial reserves to be the first option, they must answer specific questions if they choose this solution. First, how would the city replenish the reserves?

Second, what happens if the city uses all its reserves this fiscal year, but the recovery takes several years? From where will the city get the funds to pay for services in 2021-2022?

Third, how would using the city’s reserves impact the City’s bond ratings?

Another Councilmember wants to replace the word ‘Eliminate’ with ‘Defer’ COLA or Merit increases. And finally, other Councilmembers search for a solution that equally spreads the pain, sort of a “one size fits all” approach.

The problem with this narrow thinking is that it does not address unintended consequences. As an example, a 10% cut for an employee making $100,000 is far different from a 10% cut for someone making $40,000.  While a $10% reduction of $40,000 is less money in absolute terms, the $4,000 reduction has a much more significant negative impact. Whereas, a 10% cut for the person making $100,000 still leaves that person with $90,000 in spendable income for food and transportation.

If the Council chooses to cut salaries, maybe a higher percentage for higher gross-salaried employees and a lower percentage for income under $100,000 would address this disparity. Over 250 Ventura city employees are making over $100,000 a year.

Voters Elected the Councilmembers to Set Policy

Voters elected the Councilmembers to set policy, set goals and let the city staff execute the plan.  It should not get bogged down in the details of the City budget. As an example, the City Council recently took valuable time at a Council meeting reviewing fee increases to discuss whether a fee should increase by 3% or $5. Such debate appears to be a poor use of City Council time.

More impactful and vital discussions on how to help Ventura citizens recover faster and have more spendable income for their families is needed. For instance, this Council can spare Venturans from the potential tripling of water rates by redirecting Ventura Water’s plans. Changes can save hundreds of millions of dollars immediately.

Get Everyone Safely Working Again Safely

The state and the County Board of Supervisors have outlined the Phase Two procedures to return to work. This return will be slow as businesses and governments grapple with social distancing. No one knows how long this recovery will take. However, time will eventually fix our problems. Getting all companies safely up and running will fix a lot of these budgetary problems.

One thing the pandemic has shown us is how to work efficiently. It has forced us to evaluate what’s essential and what’s not. Post-pandemic, we will need to learn to do “less with less with less.” We hope the city government heeds this lesson.

Editors Comments

A Safer Approach would be for the City Council and our City Manager to consider a combination of all 13 possible ‘budget-balancing tools.’ What’s more, they should consider deferring a few more pending projects. Take nothing on that list off the table.

In the past fifty years, there have been recessions in 1974, 1978, 1982, 1987, 1992, 1999, and 2008-2009. Each downturn caught the City Council facing a budget deficit they didn’t anticipate. It’s happened again in 2020.

We strongly suggest the City Council give City Manager Alex McIntyre the chance to do his job. Let him draw on his experience and knowledge to navigate the city through the challenges it faces. Mr. McIntyre knows what works and what doesn’t. We pay him to make these decisions. He is the one to implement the plans.

Our elected officials should not make each minor budgetary decision. Only one Councilmember has been through similar difficult times before. Some have limited experience when it comes to running a business or managing a multi-million-dollar budget.

Tell City Council To Let The City Manager Do His Job

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Important Trends You Should Look For In The COVID-19 Recovery

COVID quote

Wealth Is The Ability To Fully Experience Life.”

Henry David Thoreau

COVID-19

We’re living through unprecedented times. No one knows how events will develop as we emerge from the COVID-19 crisis. Yet there are specific unmistakable trends to watch. We want you to be aware of the trends and to look out for the critical choices that will shape our future.

Now is the time to support our elected officials as they negotiate the COVID-19 epidemic. The time will come soon when the quality of their decisions will affect how much pain and sacrifice Ventura residents must bear. As a community, we’ve shown that we are resilient and generous. The Thomas Fire is a recent example. The impact of the Thomas Fire could pale in comparison to the coronavirus pandemic fallout.

Lost Sales Tax Revenue From COVID-19

The City of Ventura relies on income from two primary sources: property tax and sales tax.

Property tax revenue is constant and predictable. Yet, the Ventura City Council has little control over property taxes.

COVID-19 devestates sales tax revenueSales taxes will be severely impacted by the COVID 19 pandemic, and Measure O depends on sales tax revenue. Sales tax revenue has already plummeted. The auto dealers, the casino, the Pacific View Mall and restaurants aren’t generating the taxes the city expected. They are the city’s most significant contributors to sales taxes. To make matters worse, the transit occupancy tax (TOT, or bed tax) has been non-existent for the past six weeks. With no date set to reopen businesses, the losses will continue to mount.

How will Ventura make up the difference in sales taxes? Consumers are reeling from the loss of jobs, reduced hours, and volatility in the stock market. State unemployment benefits will help some. It’s notable, though, the Unemployment Insurance Fund (UIF) has limited reserves, which will deplete quickly.

Furthermore, many businesses closed by the shelter-in-place order will not open. Those with large amounts of debt are most at risk. Don’t be surprised by some of the large businesses that fail in addition to the smaller, Mom-and-Pop establishments that will inevitably close—resulting in even more job losses.

Solutions Will Require Creativity

With the two primary sources of income for the City of Ventura in serious jeopardy, and the City Council has little control over either. Finding a solution will require ingenuity.

With no chance to increase income, the only option available is to reduce expenses for the city. Before COVID-19, the city faced a $4.1million annual deficit for the 2020-2021 fiscal year. After the business disruption from the epidemic, the $4.1 million deficit will be a welcome alternative to what is likely to happen.

City Major Expenses

COVID-19 firingsThe most considerable expense for any city is payroll—including benefits and retirement. The salaries, benefits and pensions are all controlled by labor contracts. In fact, because of the COVID 19 pandemic, these costs will likely blow up. The Ventura City Council’s control of this expense is limited to reducing staffing levels. Here are examples that the City Council is considering. See page 6.

CalPERS Damaged By The COVID-19 Pandemic

Before the start of 2020, CalPERS required Ventura to pay an additional $2 million above the $16 million it pays typically. Even though the economy experienced a decade-long economic boom, CalPERS is only 70% funded. The drop in the stock market following the COVID-19 panic hurt CalPERS’ investment portfolio even more. By October, the $2 million additional CalPERS requires Ventura to pay may be considerably higher.

Editor’s Comments

The City Council will be in the troublesome position of making significant, painful decisions to cope with the fallout. Payroll is the only controllable, significant expense that this Council can alter. While a hiring freeze is likely, it will have limited immediate effect.

COVID-19 will require many expense cutsThere are other costs the Council can influence. It’s time the City Council scrutinizes all the cost of services to consider less costly options. Those services can be General Fund items like fire and police, or they can be other operational items like water.

In fact, water directly impacts every household. The rates water users pay are approved by the City Council, even though Ventura Water operates outside of the General Fund.

Any increase to cost of water will be damaging financially to many families already burdened by the economic shutdown.

Lost sales tax revenue, steady property taxes, and an out-of-control, bloated retirement plan are out of the Council’s control. We hope they will focus on the things they can control and rein in expenses to avoid more extensive economic pain for the city and its citizens.

Tell City Council You’re Concerned, Want to be Informed, and Are Watching the Process.

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Politicians Expect You To Pay A Little Bit More

The Ventura County Star reports on Ventura’s Pension situation and mentions VREG.

The Ventura County Star Mentions VREG

We’re proud the Ventura County Star mentioned us in an article on pensions. The Star article lists VREG as a watchdog group.

Click here to go to the article.

We believe pensions and unfunded liabilities are ticking time bombs for the city. The Star joins us in pointing this out to Ventura citizens.

In Ventura’s budget starting July 1, the city will pay CalPERS almost $11 million. That’s the amount Ventura owes in unfunded liability. CalPERS projects that to at least double five years later, to over $22 million. That doesn’t include normal, ongoing costs.

That increase almost equals the revenue the half-cent sales tax will generate. The City Council supported the tax to pay for needs other than pensions. Taxpayers believed it was for infrastructure, public safety, homeless services, water quality and other priorities.

Taxpayer and watchdog groups accuse city leaders of misleading the voters. They knew Ventura needed the revenue to offset growing retirement costs.

The Star writes, “Venturans for Responsible and Efficient Government has made similar claims.”

How Bad The Situation Is Depends On Who You Talk To

City Finance Director, Gilbert Garcia, disagrees. He says the city will separate new sales tax revenue from the General Fund. It will be overseen by a soon-to-be-created citizen oversight board.

The state will pay money from Measure O to Ventura beginning in April. The oversight committee is not formed yet. That means no citizens won’t know if the money is separate until months after the fact. The city has had since November 9, 2016 to organize the citizens’ oversight committee. Yet, four months later citizens don’t have any safeguards in place.

The article notes. “How dire the situation is—or isn’t—depends on who you talk to.”

The article notes. “How dire the situation is—or isn’t—depends on who you talk to.” How true.

The Ventura County Star reports on the burden city employee pensions are placing on City Hall.

If you ask a public employee they think the whole thing is way overblown and there is no problem. The public employee does not care that they impose a real burden on their neighbors. They have theirs. They worked for those benefits.  The taxpayers owe them.

The Council members give the public employees what they want. They give little regard to the economic consequences on the rest of the citizens. It’s the hard working men and women who they will always expect to  “pay a little bit more.”

IF THIS UPSETS YOU, WRITE YOUR COUNCILMEMBER

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Erik Nasarenko,
Mayor

Neal Andrews,
Deputy Mayor

Cheryl Heitmann

Matt LaVere, Ventura City Council

Matt LaVere

Jim Monahan

Mike Tracy

Christy Weir

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