News - May 5, 2010

Atherton grapples with town's 'unfunded liability'

by Renee Batti

In the short term, the town of Atherton must wrestle with a projected $1.2 million shortfall as it crafts its 2010-11 budget. But it's the long-term outlook, which is clouded by an unfunded liability that has reached nearly $8 million, that has some Town Council members even more troubled.

Spending in the proposed $10.4 million budget is down from last year's $11 million, but the council will have to find more spending cuts, or boost revenues with higher fees, to balance the budget.

The council looked at the draft budget for the first time at an April 26 study session. With Mayor Kathy McKeithen out of town and absent from the meeting, the other four council members expressed concern about the town's unfunded liability for post-retirement health care costs promised to employees. An actuarial study placed that cost at $7.7 million in the current fiscal year, according to Louise Ho, the town's finance director.

Cities and special districts throughout California for years have been struggling with the so-called "other post-retirement benefits" costs, which do not include pensions, and some have been setting aside money each year to build a fund to ensure the money is there when retirees need it.

The town put money aside for the post-retirement costs for the first time this fiscal year, City Manager Jerry Gruber reminded the council.

Based on the actuarial report, the town should pay a specified amount each year for the next 30 years to pay off the unfunded liability, Ms. Ho said after the meeting. The specified amount for 2010-11 is $655,000, but the city manager is recommending funding half that amount, or $327,000, for the next fiscal year unless the town's financial position improves, she said.

Clearly uncomfortable with the size of the unfunded liability and the projected $1.2 million shortfall, Councilman Jerry Carlson asked town staff and the town's Finance Committee to put together a five-year plan to review town costs and address a "cost curve that is steeper than the revenue curve.

"And the unfunded liability is key in this," he said.

Dealing with the unfunded liability "is not going to be fun, and it's not going to be easy," but it can't be ignored, he said.

Property tax revenue

Atherton's property tax revenue may not be as "flat" as that of other Bay Area towns, but this year's revenue increase is far less than what the town experienced during better economic times when real estate values soared. Ms. Ho said projections from the county show that property tax revenue will increase by only 1.2 percent this year.

The draft budget includes no money for employee raises, and doesn't touch the $873,620 general fund reserve. It does, however, spend $344,000 from the building department's $406,546 operating reserve.

Council members made it clear that they were committed to using the $1.8 million in annual parcel tax revenues only for what voters were told they would be used for: public works projects and public safety — not for balancing the budget.

They also supported budgeting $100,000 toward costs related to the town's involvement in the high-speed rail issue, which includes consultant fees and possible legal costs.

The council is expected to review a more complete draft of the budget at its May 19 meeting.


Posted by Thurston Howell II, a resident of Atherton: Lloyden Park
on May 9, 2010 at 11:57 am

That's Horrible! We should hold a fundraiser or bake sale to help save our impoverished town!

Posted by Peter Carpenter, a resident of Atherton: Lindenwood
on May 9, 2010 at 1:41 pm

Here is what Solano County did ( and the Fire District did something quite similar):

County's solid future not by accident

Published By Times Herald
Posted: 05/08/2010 01:01:40 AM PDT

Solano County has sound fiscal managers and a responsible Board of Supervisors, past and present, which have taken prudent measures to ensure solvency of the county in this unprecedented recession. In the mid 2000s, when the stock market and our local economy were booming, we wisely saved money to use when the economic cycle turned. We knew it would; it always does.

In December 2009, the county went before the rating agencies (Moody's and Standard & Poor's) as part of a cost-saving refinancing. The county finances, along with our plans for maintaining services, were reviewed in detail. Due to our strong management team and sound fiscal policies, the county's ratings were affirmed by both rating agencies, AAA by S&P and A2 by Moody's. This affirmation is unprecedented among California municipalities in this recession. Here are three specific programs the team implemented.

Pension liability management

On April 10, the Sacramento Bee published a pension meter map of California counties. Solano County was rated in the best category with a funding level of 95 percent. This rating of "best" did not happen by accident; it was the result of prudent fiscal planning.

A Pension Oversight Committee oversees the efficient management of the county's pension liability. In 2004 and 2005 the county issued Pension Obligation Bonds to close an unfunded liability caused by the stock market pullback in 2002. The county could have paid CalPERS, the state-run retirement fund, to finance this liability. Instead, the county issued its own bonds and eliminated the CalPERS liability and saved taxpayers more than 2 percent.

A fund was established so the money saved could be used to pay off the bonds and not be spent on other expenses. $50 million of these pension bonds have been paid off ahead of schedule, realizing a significant savings to taxpayers and reducing our overall liability by one-third. Additionally, for several years the county has prepaid its annual CalPERS obligation and realized another 3 percent savings.

Retirement plans for municipalities in the state have been in the news lately, focusing on a few sensational cases. The tone of the stories would lead one to believe county workers are making a fortune in retirement. Allow me to shed some clarity on this issue: CalPERS administers retirement plans for more than 1.6 million active and retired government and public school employees. The average CalPERS pension is $25,000 per year.

Despite the proactive steps we have taken to manage these liabilities, the expense of the pension system is too great to maintain as is. The cost per employee must be reduced. The board continues to support staff efforts while we work to reduce our pension and benefits costs going forward.


In the late 1990s, county leadership realized we were not prepared for the next recession and began to build reserves. Learning from the Katrina disaster, the county modified its reserve policy to keep a minimum of $20 million in reserve at all times. Reserves peaked at $60 million before the current recession hit. It is this financial capacity that enables the supervisors to:

* Sustain the service levels it has to date.

* Minimize layoffs and avoid the wholesale program elimination that neighboring counties have experienced.

* Fund local priorities, such as the Williamson Act subventions that protect our $1 billion agriculture industry.

* Established a building maintenance fund to ensure our infrastructure investments could be maintained in a tough economy.

Deficit management

In December 2009, the supervisors took aggressive action to reduce the projected General Fund structural deficit by half in order to ensure solvency in future years. The deficit is calculated by comparing expected revenues to expected expenses. Additionally, the board directed staff to further reduce the remaining deficit in the coming year. These early and decisive actions have positioned Solano County to be proactive in selectively maintaining our most critical programs.

The county clearly has challenges ahead. Property tax revenue, sales tax revenue, and revenue from the state continue to decline. The challenge we now face is how we downsize county government to fall in line with the revenue stream and protect our most important services in the process.

Fortunately, we have reserves to protect core services while we do this over the next few years.

Charles Lomeli

Solano County Treasurer, Tax Collector, County Clerk

Posted by scoundrel, a resident of Atherton: Lloyden Park
on May 10, 2010 at 8:58 am

I say bring back Jim "no clue" Robinson back.

If the Town had these kinds of problems back when he was City Manager, at least Jim had the good grace to keep them to himself.

Posted by BrokeAthertonian, a resident of Atherton: Lloyden Park
on May 10, 2010 at 12:38 pm

Wasn't there some plan to annex part of the unincorportated county land near the fifth avenue market to raise sales tax cash? Perhaps Atherton better revisit that plan.

Posted by POGO, a resident of Woodside: other
on May 10, 2010 at 12:55 pm

Better to think in terms of getting a handle on spending than new revenues.

What makes you think the county (or any other municipality) would give up those sales tax revenues?

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