Irwindale’s deficit hit $2.6 million, up from its earlier projection of $1.6 million. While Irwindale has been grappling with the downturn in the economy, the hit to the budget came from an employee liability cost of $850,000.
Experts predict that pensions and other non-pension costs, such as healthcare, will have a significant impact on our local government’s budgets in the near future, especially as the baby boomer will begin retiring in droves.
Below is the advisory report sent by the city:
BUDGET OUTLOOK ADVISORY REPORT 2009/2010
December 10, 2008
Robert Griego, City Manager
You are aware that the global economy has taken a downturn and the general opinion is that it will take some time to turn around. Cities all over the United States are facing precarious fiscal conditions due to falling revenue and rising costs from inflation, energy, infrastructure needs, salaries, healthcare and pensions. With our state in economic crisis, the City of Irwindale also finds itself in a fiscal dilemma. In these difficult times, I am asking that the City Council, residents and staff unite and work together as a team so that we can take the necessary steps now to protect the City’s future and avoid more drastic cuts. It will take courage and some sacrifices to keep the City fiscally sound and I am asking that we work together towards a common goal—-the future wellbeing of the City, its residents and its businesses.
The City will be entering another difficult budget cycle for FY 2009-2010. As you may recall, for the current fiscal year, we began with a planned $1.6 million operating deficit that the City Council backfilled with general fund reserves and approved some minor cuts. Results from the GASB 45 Pension Fund Actuarial Valuation require the City to fund approximately an additional $850,000 annually in order to begin funding our retiree healthcare obligations. This figure was not included in our original planned deficit and brings our current year’s total operating budget deficit to $2.4 million.
For FY 2009-10, the City will again face a serious situation where its operating costs are more than revenues earned. We have already seen the State look to cities to help its financial crisis, and we should expect that to continue. The national forecast for the next several years is not good, so we also have to plan for a further drop in revenues next year and beyond.
If the City Council wants to sustain the City’s long term financial future, it needs to start with this next fiscal cycle. As the City Manager, I need to provide direction and guidance to the staff on how to prepare and plan for this year’s budget cycle.
Last year, I thought a 5% reduction in operating expenses would start the City on a path to adjust spending levels to match the revenue income; the City Council did not support that action. It would be very helpful and save a lot of staff time if I knew where the City Council stood on further reductions to operating costs in order balance expenditures to revenues.
In February, once we can project incoming revenue, I will be presenting another budget outlook report to the City Council. At that time, I will need to know if the City Council will support any further reductions in operating costs. My experience has taught me that gradual cuts over time are a better way to deal with deficits. The longer you wait the more difficult and drastic the cuts will need to be.
I will let you know then exactly what reserves you can use to fund operating cost deficits and project when they will be depleted. If the City’s revenue situation does not improve and the City does not reduce expenditures, the City will most likely deplete all available reserves within the next two to three years.
The “good news” is the City is moving forward with important revenue projects that will help in the future:
Cal-Mat site development projected to bring in $2.5 million for the first 10 years.
The Materials Recovery Facility (MRF) expected to bring at least $2 million each year.
Shannon site potential Executive Hotel/Retail development possibly $200,000 to $300,000 per year of sales and a new transit occupancy tax.
These projects were initiated this past year. The revenue from these projects will not be available for two to three years; therefore these revenues should not be relied upon to get the City through the next few difficult years.
I am providing this budget advisory report so that the City Council, City staff, and residents can begin thinking about the City’s financial future. The City is not expected to attain another financial windfall like the mining tax, which is now built into the City’s operating budget due to the 100% increases made in the operating budget in the 2000 to 2005 fiscal years. The Federal government has said it expects the global financial crisis to last 10 years. The State of California expects to be in financial stress for the next 15 years. Therefore, the City can only expect more take-always from the State, such as tax increment, housing funds and other revenue adjustments. The City currently relies on $1million of tax increment each year to supplement its operating budget. When the Redevelopment Agency expires in 2017, the City will need to backfill from other sources to maintain service levels.
It is going to take some very smart and tough decisions from the City Council, City staff and residents to adjust to the financial dilemma we are facing in the next three years. But, to survive and sustain governmental operations in the future, some major thought needs to be made about the level of service the City is able to continue to provide. In order to adjust, the City will need to start to reduce expenditures this fiscal year, or face more drastic cuts in the future where some services will need to be reduced or eliminated.
In January, I will be recommending that the City Council allow the City Manager to establish a resident Budget Advisory Committee to work with the City Manager to develop recommendations to the City Council on how to reduce service levels and operating expenditures to address budget shortfalls.