The Los Altos City Council last week unanimously adopted a new city financial plan that warns of uncertainty ahead regarding public employee pensions and rising health-care costs.
The council’s 5-0 vote June 25 approved a balanced city budget for 2013-2015 that anticipates a modest 1.79 percent revenue increase in 2013-2014 and a five-year Capital Improvement Program (CIP) that calls for approximately $4.1 million in capital projects for the coming year. Highlighted in the plan is the achievement of a 20 percent general-fund reserve ($6.1 million) one year ahead of schedule, which Los Altos Finance Director Russ Morreale termed “a rainy-day fund.”
Morreale told the Town Crier that uncertainty surrounding California Public Employees’ Retirement System (CalPERS) costs in 2015-2016 was “a big driver” in the city’s decision to remain in “cost-containment mode” for the near future.
“It continues to make us lean,” he said. “We have to do more with less.”
A budget message in the city’s financial plan warned of potential “double-digit (rate) increases over the next 10 years” despite the city’s implementation of a second-tier retirement benefit system that requires greater employee contributions. The State Pension Reform Act of 2013 also implemented a third retirement tier for some public employees.
Morreale pointed to the establishment of a new CalPERS reserve fund with an anticipated $600,000 balance at the end of the two-year budget cycle to “counterbalance” anticipated pension rate hikes in the near future.
“We expect a bigger bill from PERS and built that into our forecast. … This reserve will help mitigate those increases,” he said.
Other cost-containment steps include the deferment of an additional five city staff positions – bringing the city’s total number of position deferrals to 12, according to the financial plan, which would likely cause an impact on services. Morreale also noted the deferment of new equipment purchases, with the exception of core needs related to public safety.
Morreale listed additional challenges for the city down the road, including increased health-care costs, potential increases in fire services after the contract with the county expires in 2016 and the costs of maintaining aging civic center facilities. The $4.1 million in projects listed in the 2013-2014 CIP includes a $200,000 study “to look at the most immediate civic center needs,” according to Morreale, as well as $175,000 earmarked for “general” facility repairs in the coming fiscal year.
“The reality is most, if not all, of our civic center buildings are old and in need of repairs,” he said, adding that the budget includes an additional $100,000 for facility repairs in 2014-2015.
The city has earmarked approximately $1.8 million in sewer funds for wastewater systems/sewer repair and maintenance in 2013-2014, with more than $500,000 in CIP funds allocated for street resurfacing and repair.
Despite leaner times, Morreale’s report calls for optimism on some fronts, including development fee revenues such as $2.7 million for the final installment of the First and Main streets property sale, $4.3 million in park in-lieu fees as a result of ongoing developments downtown and along El Camino Real and San Antonio Road. The financial plan outlines anticipated property-tax increases of 4 percent and 3 percent, respectively, in the coming two years.
“We’re starting to see some movement there, which is a positive sign,” he said.
Property taxes continue to make up the bulk of general-fund revenues at 65 percent, followed by sales taxes and users tax dollars at 12 percent each.
Los Altos city budget highlights
• Projects 1.79 percent revenue increase in 2013-2014.
• Earmarks $4.1 million in capital improvements in 2013-2014, including sewer maintenance and repair and road paving and repair.
• Achieves 20 percent general-fund reserve balance ($6.1 million).
• Defers five city staff positions as a “cost containment” measure.
• Establishes CalPERS reserve fund for anticipated rate increases for public employee retirements.