Fire district gets big slice of property taxes

This is the second in a series of stories on the budget and financing of the Menlo Park Fire Protection District, which covers Menlo Park, Atherton, East Palo Alto and some nearby unincorporated areas.

As fire board President Peter Carpenter puts it, when looking at the finances of the Menlo Park Fire Protection District, the same figures can be seen to prove two points: how “well-run” the district is, or how “rich” it is.

Mr. Carpenter says the district’s prudent fiscal management includes a philosophy of paying “the true cost of doing business” each year by putting away money for pension obligations, capital spending (including replacing buildings), and equipment purchases. That practice has given the district healthy reserve funds equivalent to more than 200 percent of its annual spending.

While Mr. Carpenter says he sees the district as well-run, fire board member Chuck Bernstein sees it another way.

“We’re a rich agency,” Mr. Bernstein said when asked why the district pays its employees so well. “What public agencies do is spend all the money we have. We’ve given it away.”

Property tax revenue

However it’s looked at, the fire district does receive a large chunk of local property tax revenues, the 1 percent of assessed value that property owners pay, which is where most of its funding comes from.

Information from the San Mateo County Controller’s Office shows that during the 2015-16 fiscal year the fire district received $11.8 million more in property tax revenues than the combined total for the three cities in the district: Menlo Park, East Palo Alto and Atherton.

All receive revenues from other sources, which for the cities may include sales taxes, hotel taxes, vehicle license and other fees, and parcel taxes. The fire district receives additional revenues including funds from fees, federal and state agreements, and agreements with developers.

The county’s figures show that property tax revenue for the fire district totaled $41.1 million in fiscal year 2015-16, compared with the combined total of $29.3 million received by the cities of Menlo Park, Atherton and East Palo Alto. Menlo Park’s property tax revenues were $14.1 million; Atherton’s, $8.6 million; and East Palo Alto’s, $6.6 million.

Essentially, the fire district receives more in property taxes for providing emergency medical (excluding transportation), fire and other emergency services (hazardous waste spills and rescues among them) than all three municipalities combined receive for providing city services such as police, parks and recreation, streets, and land-use planning (plus the library in Menlo Park).

Employee pay

Much of the fire district’s budget goes to employee compensation, and compared with local cities it pays much more per employee. While the fire district has only about 25 percent of the number of employees the city of Menlo Park has, the fire district in 2015 spent 78 percent as much compensating them, according to the California State Controller’s website (publicpay.ca.gov).

The fire district spends twice as much as East Palo Alto on employee compensation (wages plus benefits and employer contribution to retirement) although it has only 10 more employees.

The fire district spent four-and-a-half times as much on employee compensation as Atherton did in 2015, with two-and-a-half times as many employees.

Kathleen Jackson, the fire district’s administrative services manager, says the major difference between the district and a city is that most of the district’s employees are firefighters. In 2015, the controller’s website shows 102 of 136 employees worked in fire suppression, as compared, for example, with Menlo Park, where 85 of 531 employees were in the police department. The fire district also has few part-time employees.

The controller’s website shows, for 2015:

• The fire district had 136 employees (full- and part-time, but not including contractors) with total compensation (wages plus benefits and employer contribution to retirement) spending of $25.1 million.

• The city of Menlo Park had 531 employees with total compensation of $32.3 million.

• The city of East Palo Alto had 126 employees with total compensation of $11.5 million.

• Atherton had 53 employees with total compensation of $5.6 million.

Proposition 13

The current system of allocating property taxes can be traced back to 1978, when voters approved Proposition 13, a California constitutional amendment initiative that limited property taxes to 1 percent of assessed value, and limited increases in property assessments.

Immediately after Proposition 13 passed, the Legislature adopted other laws on how the revenues from the now-limited 1-percent property tax should be allocated to local government agencies.

In its first year, Proposition 13 reduced California property tax revenues by $7 billion.

Senate Bill 154 provided that each local government agency’s share of total property tax revenues would be based on the historical percentage share of property taxes it received within the county prior to Proposition 13.

Since 1978, numerous laws have revised the method by which property taxes are allocated to local government agencies. As assessed values increase, each jurisdiction in the area receives its allocated portion of the increase in property tax revenues.

Or, as fire board director Mr. Bernstein put it: “We as a district lucked out and happen to be very well-funded.”

Healthy reserves

Another result of the funding allocation is that as the local economy has boomed, so have the district’s reserves. At the end of the 2015-16 fiscal year, the fire district had $72.1 million in reserves, according to its recently released comprehensive annual financial report. The reserves are 207 percent of the district’s total spending of $34.7 million in the 2015-16 fiscal year.

Among the reserve funds is an $18.1 million “budgetary deficit” reserve, which is 52 percent of all 2015-16 spending, including on capital projects, and almost 60 percent of 2015-16 general fund spending.

The district also has set aside $28.2 million for capital improvement projects, $3 million for FEMA deployments, $2.5 million for debt service, and $5 million for apparatus, as well as $13.7 million in miscellaneous reserves for things such as equipment replacement and workers’ compensation.

In addition, the district has been paying down its long-term pension obligations. In the 2014-15 fiscal year, the district paid off $12 million of its pension obligations, and it has another $5.76 million set aside for this purpose.

The amount of the reserves is beyond what many other agencies keep in their coffers. Atherton’s policy, for example, is to have an operating reserve of 20 percent of its operating budget and an emergency reserve of 15 percent. The town also has about $6 million reserved in a capital improvements fund. At the end of fiscal year 2015-16, Atherton had total reserves of $9.76 million, about 82 percent of its $11.86 million in total spending in 2015-16.

The fire district started the 2016-17 fiscal year with close to $41.5 million in its general fund and in its adopted budget estimated it would receive total revenues of $43.4 million, with estimated spending of $50.1 million (including nearly $1 million in debt service and $4 million on capital improvements).

Pay as you go

Mr. Carpenter said the large amount of reserves can be explained not by the property tax allocation, but by the fire district’s fiscal “pay as you go” philosophy. “As time goes on, our decision looks better and better,” he said.

Mr. Carpenter said any other way of operating would “be mortgaging the future generation” of fire district taxpayers.

Fire Chief Harold Schapelhouman said other agencies “don’t plan ahead” like the fire district does, but then complain about the district’s bottom line. “They say you have too much,” he said.

He said the district’s fiscal condition has required sacrifices.

“I don’t want to make it sound like it was easy,” he said. “It wasn’t easy at all.”

Mr. Carpenter said most public agencies “spend most of their money” on current expenses, but the fire district has chosen not to. “We could have added 120 or 130 people” to the payroll, he said, but the district doesn’t want the associated long-term obligations, especially for retirement costs.

“We’ve got this money because we chose not to spend it,” Mr. Carpenter said.

Previous story: Cause for alarm? How the Menlo Park Fire Protection District pays its employees

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