In the short term, the town of Atherton must wrestle with a projected $1.2 million revenue 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 with revenues projected at only $9.2 million the council will have to find more cuts in spending, boost revenues with higher fees or taxes, or shift existing funds to the operating budget in order to balance it.
Staff is recommending that the shortfall be filled in with about $874,000 of parcel tax revenues, to be directed toward police services, and about $344,000 from the Building Department's operating reserves.
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.
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.