Look How Much We Saved!

Should Costa Mesa dip into its savings account when the City has record breaking revenues?  That’s what’s been suggested in our mid-year budget report to be considered at the Tuesday, February 10, Study Session (link).

Were we to adopt the suggested spending plan, our general fund balance would drop lower than at any time since the recession.  And it would be barely $1,000,000 more than the low point in 2010, at the close of the recession. That’s not even keeping up with inflation!

But how can that be?  Didn’t we run a surplus?

Yes we did, but the report suggests spending nearly double the surplus.  Spending proposals address the “budget variance” instead of the surplus.

So what’s the difference?

The net increase in revenue over spending is what we commonly call the “surplus”.  This is sometimes called the “increase in fund balance”.  For 2013-2014, audited figures (here) show a net increase of $4.55 million in the general fund balance as of June 30, 2014. 

The variance is the difference between where the City was projected to be and where it ended up, financially speaking.  If the budget projected a surplus of $2 million to the general fund and we ended up with a $5 million surplus, the $3 million difference would be the variance.  Cash on hand would have increased by $5 million, but since a $2 million increase was already anticipated, only the $3 million would be the variance.

Similarly, if the budget projected using $20 million out of savings but we only used $12 million, then $8 million would be the variance.  Sure you’re not as bad off as anticipated, but no one with an iota of fiscal responsibility would see that as time to start an $8 million shopping spree.

The 2013-2014 budget projected dipping into general fund reserves to the tune of $5 million.  Fortunately, the City spent less and generated more in revenue than anticipated, resulting in a general fund surplus of $4.55 million.  Instead of going into the red and using $5 million out of our savings account, we are $4.55 in the black.  The total variance (NOT surplus) is the amount previously anticipated to be in the red ($5 million) plus the amount in the black ($4.5 million), i.e. $9.5 million.

About $3 million is already spoken for, leaving a $1.3 million surplus.  Since our general fund is still so far below pre-recession levels, you might think common sense would dictate saving all of the remaining $1.3 million surplus.  Especially since the midyear budget report says we are pretty much on track to come out even in the current year, without a surplus. 

Instead, it’s suggested that the City go ahead and use not just the entire surplus but the rest of the “variance”, too, continuing to gut the General Fund.  Remember, every penny over the $4.55 million surplus means additional draining of our reserves. 

As proposed, $4 million would be allocated to capital projects, and $2 million would be returned back to the general fund reserve.  This would result in a net loss to the general fund of about $3 million, but is being billed as “an opportunity to increase reserves”.  Huh?!?!?

As seen above, our general fund hasn't increased much since the recession—less than use of savings included in the $9.5 million variance.

The variance includes funds saved BEFORE the recession even started. 

Wow! At this rate, pretty soon they'll be spending funds we built up during my previous stint on council, twenty years ago.

It could be worse.  What if the entire variance (NOT surplus) were spent?  That would bring the general fund balance lower than it’s been at any time since well before the turn of the millennium!

But look how much we saved!

Hey Big Spender!

The current City Council majority likes to tout its skill  in balancing the budget, but a review of recent budgets tells a different story.

Did you know that the Fiscal Year 2014-2015 Budget appropriates $139.9 million on anticipated revenues of just $132.8 million?  And that’s not all.  Every budget adopted over the past four years has been similarly out of balance.

That’s right.  In four years of rising revenues, the Righeimer Council has yet to adopt a budget that balances spending and revenues. 

Every budget adopted for the past four years has relied on savings in order to balance.  In four years, Jim Righeimer has never voted for a truly balanced budget, with planned spending at or below anticipated revenue.

As revenues have risen, the urge to spend has followed.  Appropriations increased 28 percent from Fiscal Year 2010-2011 to FY 2014-2015.

It isn’t unusual for a City to go into savings for a major construction project, as would have occurred under our adopted budgets, but the money has to be saved up in the first place. Costa Mesa could have been in real financial trouble if we’d hit another financial bump in the road.

Fortunately for Costa Mesa’s financial future, tax revenues are at record levels.   In addition, it wasn’t possible for city staff to get the money out the door as fast as some on the City Council may have liked. 

So what about those much-vaunted capital improvements?

Capital improvement spending has remained relatively modest, when compared to pre-recessionary years.  In the past, the City rehabilitated as many as fifty miles of arterial streets in a single year as well as repaving numerous residential streets (2007-2008).  In recent years it's been less than half that.

Spending is below the amounts appropriated, not yet rebounding to pre-recessionary levels.  A good thing, too.  If all appropriated funds had been spent, we’d really be in the hole.

At the same time, it is important that we maintain our infrastructure and not allow it to degrade. But as we pursue major projects we must make sure we have appropriate priorities.

City beautification is nice, but with all our other pressing needs, should that be a priority? The new landscaping on Harbor Boulevard is lovely, but is it really the best use of our tax dollars, as well as our residents' time stuck in construction traffic, as we pay contractors to rip out pink stamped concrete and replace it with rocks that look like ... er... gray stamped concrete?  

Not to mention the Manolo Blahniks of the crosswalks world.   Just like Manolo stilettos, they look great, but cost a bundle and are impractical for their ostensible purpose, i.e. walking.

Let's spend our infrastructure dollars wisely. 

Right now, Costa Mesa still needs to consider all spending very carefully—and not call a budget “balanced” when it’s balanced by our hard earned savings.

It Just Doesn’t Add Up

Costa Mesa City Hall has issued a press release  telling us the City will have a surplus of at least $6 million this year.  The press release also asserts that “Over the past four fiscal years, the city’s budget surpluses have added up [emphasis added] to $19.4 million.”

So our General Fund should really be growing, right?  We don’t have audited numbers yet for the 2013-2014 Fiscal Year, but the Comprehensive Annual Financial Reports (here) show less than a $5 million increase from 2010 to 2013.

This shows a decrease in the General fund from 2012 to 2013.  

Sometimes money is transferred between different City funds.   Let’s look at the balance in all of our government funds.

Hmmm.   There’s a drop in total fund balance from 2012 to 2013, too.

With all those surpluses, our fund balance should be well on the way to pre-recession levels.  Then why have our assets crept up so little? 

We did take a loss due to closure of the Redevelopment Agency.  The City Council had little to no control over that.   

On the other hand, the Council majority is crowing about revenue increases over which they had had little to no control, either.   If they want to own the up side, then they need to own the down side as well.

Where did the “up side” come from?  Obviously, a big factor was the recovering economy.  City budgets  show that annual sales tax revenue increased from $34.6 million in FY 2009-2010 to $45.8 million in FY 2012-2013. 

In addition, Costa Mesa voters approved an increase in the hotel tax in November 2010, the same election which put our current Mayor in office.  Just the increase in the hotel tax rate brought in a little under $4 million over 2010-2013, with additional increases due to the economy.

We also got over $5 million from narcotics asset seizures from 2011-2013.  Since it takes a few years for the Feds to process these funds, we may still have a little of that trickling in from past seizures, but with our decimated Police Department don’t expect to see much of that generated in the future.

Speaking of decimation, we also got a couple million as our share of the assets remaining in the now-defunct helicopter program.

Wow with all that money coming in, Costa Mesa should be rolling in dough.  Our reserves should be way up, shouldn’t they?

Sure, if the City didn’t spend the surplus.  In November of 2013, also before the audit was released, the City began making plans for spending the “FY 2012-2013 surplus of $7.1 million”.   Ultimately a spending plan for $5.5 million of the surplus was adopted.   

At the same time, proposed spending for Fiscal Year 2013-2014 was increased by a $1.568 million.  That means “extra” money at the end of 2013-2014 includes a carryover of the “extra” $1.568 million from 2012-2013.  Has anything else been double counted?

We do know one thing that isn’t counted in the overall figures for government fund balance—decreases in the self insurance fund recently analyzed by Anna Vrska (link).  

Burying Money in the Medians

Costa Mesa’s recently adopted budget includes $444,000 to redo the medians on Mesa Verde Drive.  Yes, these medians, the ones redone so recently many of the trees are still staked.  

Does this really need to be replaced?

Note stakes on small trees in both pics.

The money to do this and still have a balanced budget, at least on paper, was taken from funds set aside for future use for a new library.  Other unfunded needs include repairs to the fifty-year-old Royal Palm Fire Station and generators for the Police Department.  City Manager Tom Hatch stated that the City needed to start setting aside money for such major expenditures as replacement of the fire station and building a new library (video at about 3:01:50).  Council Member Mensinger, who urged that the City spend money on the medians, suggested the City fund major improvements using mechanism similar to what was done for the police station (video at about 3:03:40).

What he didn’t mention is exactly what that meant.  Did the City get a grant?  Did we use narcotics forfeiture funds?  How was the police station expansion and rehab financed?  Debt. 

When did Costa Mesa voters approve the debt financing?  

We didn’t.  

Article 16 of the California State Constitution, prohibits cities from incurring any debt without two thirds approval of the voters, but the City used a mechanism called Certificates of Participation, or COPS.  The bond buyer, oops, the COPs buyer “participates” in revenue generated by the activity funded by the borrowed money.

If you’re wondering what revenue stream is allocated to pay the debt,  it’s the lease payment for use of the police station.  And who, you may ask,  is leasing the police station?  We are.  The City is essentially leasing the police station to itself, then using the lease payments to pay off the bond. 

The bonds for the police station were not issued by the City but by the Costa Mesa Public Financing Authority.  The Financing Authority is a joint powers authority made up of the City of Costa Mesa and, er, well just the City of Costa Mesa acting jointly with itself.  The board of the CMPFA consists of the Costa Mesa City Council.

In December 2006 the Costa Mesa City Council, acting as CMPFA , voted to borrow up to $30 million to be paid back through the revenue stream received from leasing the police station to the City of Costa Mesa .  By putting on another hat, the city acquired nearly $30 million in debt which it will repay by leasing the police station to itself.  At the end of the lease period, the City will once again own the police station free and clear.  In the unlikely event of default, the holders of the COPs can take title to the police station.

And it’s all legal!  Lots of cities do it.  Both Santa Ana and Newport Beach financed city hall improvements with COPs.  Stockton did it for all sorts of things. 

But somehow, frittering money on “improving” recently improved medians that already look pretty good while in nearly the same breath suggesting we go into debt for necessities just doesn’t sit well with me.  Sort of like taking the family on a Caribbean cruise while getting a second mortgage to pay for replacing your leaky roof.

It’s especially troubling when the debt is incurred using an end run around the voters of the City of Costa Mesa.

Creative Financing in Costa Mesa

Recently, spending by the City of Costa has been outstripping revenues, but on July 15, the City Council declined to place any measure on the ballot to increase either the hotel tax or business licenses fees, both among the lowest in Orange County.

But don’t worry. They’ve thought of a new way to raise revenue.

Tonight August 5, the City Council will consider a new animal control ordinance which would result in a first time fine of $250 for a dog that barks for more than a half hour. Fines would escalate for subsequent offenses.

Of course no one wants to listen to a dog that barks for hours on end. Just as no one wants to listen to yowling cats, squawking parrots, or power tools for an extended period either.

But how do they define “barking dog”? Any dog that “barks, bays, howls or makes any noise audible beyond the boundaries of the property on which the dog is situated.” Any noise audible? That could include panting, slurping from the water dish, or even thumping a happy tail against a wall or flower pot.

And why just dogs? The City would retain a part of the existing Code regarding animal noise “to ensure that any noisy animal which creates a nuisance can be addressed”. How is it that the existing code can “ensure” that “any noisy animal…can be addressed”, but cannot adequately address noisy dogs?

In eight years on the City Council I received complaints about noise from boom boxes, dive bars, dance clubs, party houses, leaf blowers, garage bands, the police helicopter, squawking birds, and even kids bouncing a basketball, but I don’t recall barking dogs as an issue. Watching council meetings, this does not seem to have changed much. Apparently our Animal Control officers are doing a good job using the existing ordinance.

It’s Not the Noise

Where noise is an issue, the City’s existing Codes address noise in terms of decibel (dB) levels and time of day. Under the existing Codes, noise over an extended time is limited to 55 dB during the day and 50 dB at night, a level 100,000 times the lowest level audible for people with good hearing. Leaf blowers may only be used during the day and are restricted to a maximum of 65 dB (incidentally a level normally exceeded by all but electric or battery powered leaf blowers).

The proposed ordnance makes no distinctions when the noise is created by dogs. Whether 2 pm or 2 am; 1 dB or 100 dB; it would all be the same. It wouldn’t matter if you kept your dogs inside or even had them de-barked (please don’t), since noise could still be audible.

And let’s face it, if this City Council were really concerned about noise, would we have at least six hours of whistles, pops and house-rattling booms every Fourth of July?

It’s the Economy

On the other hand, assuming that Costa Mesa follows national trends, there are at least 20,000 to 25,000 dogs in town. If even ten percent make “audible noise” for a half hour, that’s at least a half million bucks into city coffers. You’ve gotta admire their creativity, if not their common sense

Disputes between neighbors often play out at City Hall, usually through the venues of Code Enforcement and Animal Control. Often complaints regarding pets have little or nothing to do with the animals themselves and everything to do with problems between neighbors over some other issue. Would this become another hammer with which to beat up a neighbor?

Who Cares

But hey, who cares if the City makes money off the deal? I do. My current canine buddy is pretty quiet, but one can’t predict the future. My greater concern, though, is dog owners subject to draconian fines for even minimal noise, several orders of magnitude lower than noise levels acceptable for any other source.

We already have too many dogs at the shelters, a problem exacerbated by a rise in home foreclosures. It would be tragic if any dog owner felt forced to surrender a dog to the shelter as a result of this ordinance.

That’s sad. I think I’ll go pet my dog. Not too much, though. The thumping of that waggly tail might be audible.