News - March 24, 2010

Atherton forecast: severe budget problems ahead

by Andrea Gemmet

Atherton's five-year budget forecast is in, and the future looks grim for the town. The town's finance director is projecting dwindling revenues and growing expenses that will drain the town's reserves in four years.

The conservative projections reflect "the worst scenario the town could face," said finance director Louise Ho at the March 17 Atherton City Council meeting. While it might be a worst-case scenario, it was one that council members seemed inclined to believe.

"Certainly, this is not an acceptable plan, and it's not one we will even try to pretend to make," said Councilman Jerry Carlson. "The rate of growth of expenses every year exceeds the rate of growth of revenue. That's a problem."

Ms. Ho's forecast shows property tax revenue, the town's single largest source of revenue, will not be sufficient to support the town's police and public works departments.

"It's shocking to have it spread out like this, because clearly things are going to have to change," said Councilwoman Elizabeth Lewis. "We have to make some severe cuts."

The council called for a study session meeting to delve into the problem more deeply.

"This is a 'When did we go bankrupt?' five-year plan," said Councilman Jim Dobbie.

City Manager Jerry Gruber said his goal is to create a balanced budget this year that doesn't dip into the town's reserves.

"We keep saying this is the worst-case, but frankly, it's not," said Mayor Kathy McKeithen, who pointed out that town is still facing significant legal expenses that aren't reflected in the five-year projections.

Compounding the budget problems is the recent loss of a significant source of infrastructure funding — road-impact fees. In December, the council rescinded the fee upon advice that it left the town vulnerable to lawsuits over its legality. The fee, which was charged to builders for wear and tear on roads, was used to fund road-repair projects.

A plan to refund $1.6 million in road impact fees is entangled in a procedural vote.

Mayor Kathy McKeithen used the five-year forecast as her reason for opposing a transfer of $1.1 million in general fund reserves into a road- impact fee fund for refunds.

Staff characterized the transfer as correcting an accounting error that improperly put road-impact fees into the general fund.

"It's one thing to say that we are legally obligated to replenish those funds, but I do not believe that it should come from reserves when we don't have a balanced budget," Ms. McKeithen said.

By council policy, transfers from the general fund require a four-fifths super-majority vote, but both Ms. McKeithen and Mr. Dobbie voted against the transfer, which failed on a 3-2 vote. Mr. Dobbie said he doesn't believe the council should have rescinded the road-impact fee at all.

"It's a simple issue. We're taking ill-gotten gains that ended up in our general reserves," countered Mr. Carlson. "I don't see why we need to keep bickering about it."

Next month's Atherton council meeting will likely see the same item back on the agenda, along with a new item: changing the policy requiring a fourth-fifths vote to a simple majority. Ironically, changing the policy requires only a simple majority vote.


Posted by Ronny, a resident of Atherton: other
on Mar 24, 2010 at 7:37 pm

Try increasing the business taxes. "Say what?"

Posted by Peter Carpenter, a resident of Atherton: Lindenwood
on Mar 24, 2010 at 8:19 pm

Why is this such a surprise? Why did the Council not act long ago?

Here is what I wrote in December 2008:

Spectrum - Friday, December 5, 2008

Guest Opinion: Economic 'perfect storm' is brewing for local agencies

by Peter Carpenter

For many years I have been directly involved in local government agencies or in federal programs designed to support local and state agencies.

Never in that period have I seen such financial storm clouds as now appear on the horizon of local governments.

For the last eight years I have had the privilege and the responsibility of serving the citizens as an elected director of the Menlo Park Fire Protection District (which serves Menlo Park, East Palo Alto, Atherton and parts of San Mateo County) — one of the finest fire districts in the country.

Previously, I served as a Planning Commissioner in Palo Alto and, many years ago, as the federal official in the Office of Management and Budget who was responsible for coordinating all federal assistance to state and local governments.

With falling property values yielding less property-tax revenues, falling consumer and business spending yielding less sales taxes, increased retirement costs (because CalPERS has suffered significant loss of capital in the current financial downturn), continued demands for well-above-average salary increases by public employees, and the governor declaring a financial emergency, local governments in California are facing a Perfect Storm.

Unless local governments act promptly to respond to these dramatic changes we will see more of them joining Vacaville and Rio Vista in being forced into bankruptcy.

Housing prices and hence property taxes will be depressed for at least another two years — just about everywhere except the Palo Alto area, it seems.

And if a lot of the current homeowners request reassessments the decreases will be dramatic.

Similarly consumer and business spending are forecast to be depressed for the next two years.

And CalPERS, which is obligated to continue to pay out fixed-benefit retirement payments and which has seen huge losses in its capital, can only turn to local governments to make up the difference.

And local governments have no choice but to pay what CalPERS will demand.

And while this is all happening local-government unions are continuing to ask for significant increases in both salaries and benefits.

The total labor costs for most local governments are between 60 and 80 percent of their total budgets. While California's local governments are blessed with very talented and capable employees, the current process of salary-and-benefit negotiation has gotten out of hand.

Local-government employee unions insist that the standard for setting their pay be that they be above the average of other public employees. But if everybody is above average then the average goes up very quickly.

While we have many superb employees working for local government, those employees should not expect to receive salaries and benefits that are inconsistent with those of the citizens whom they serve or that will bankrupt their employers.

And in most cases those inflationary-spiral labor agreements are being approved in secret without any public input or scrutiny.

As an elected member of the Board of Directors of one of the finest fire districts, what do I think should be done to respond to this Perfect Storm?

First, local governments need to recognize that there is a crisis and act now.

Second, they need to involve their citizens in a careful look at each of their programs to determine which programs are no longer affordable — however nice or special they might have been in better times, or even how worthy any single program might be.

Third, they need to plan now for hiring freezes, elimination of overtime, reduction in services, layoffs, renegotiated labor agreements and, in the extreme, bankruptcy.

Fourth, they should consider accelerating essential capital-improvement projects (the operative word is essential), as construction costs during this downturn will be substantially less than if the projects are delayed until the recovery begins.

Finally, they need to move the review and approval of new labor agreements out from behind the current wall of secrecy from which the public is excluded.

Once new labor agreements have been agreed upon by the negotiators then those agreements should be simultaneously submitted to both the union members and to the public that will bear the costs well before the city councils and special district boards meet in public session to vote on those agreements.

The Perfect Storm can be weathered but not by sunbathing on the deck.

Peter Carpenter is a longtime resident of the Midpeninsula who currently is a member of the Board of Directors of the Menlo Park Fire Protection District. He can be e-mailed at

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