It would have been very easy to only focus on the news of Signal Hill’s projected $1.35-million budget surplus in its general fund for the end of the fiscal year, but city officials warn that rising costs– especially future staffing costs– could dramatically change Signal Hill’s financial outlook in the upcoming years.
At the mid-year budget review at the April 2 Council meeting, Signal Hill Finance Director Terri Marsh reported that current estimates for the balances for the general fund and all of the reserve funds for the fiscal-year ending 2012-2013 will total $28.9 million.
“Even with this positive budget news, staff continues to recommend caution as we move forward,” City Manager Ken Farfsing told the Council, as he reminded the councilmembers that the City will face a number of subsubstantial bills in the near future.
The City Council has also attempted to address the rising cost of employee retirement pensions. The city manager added that the Council more than 10 years ago established a reserve fund that would have addressed some of the problems created by the California Public Employees’ Retirement System, which is also known as CalPERS or PERS.
“But in no event is that reserve fund large enough to handle where PERS is headed at this point,” Farfsing said. “The rising cost of PERS payments will be a major financial issue beginning in the year 2015–2016, but we really need to begin planning now.”
Farfsing said that the retirement system announced that it’s “changing assumptions” on earnings and younger workers’ life expectancy. According to the city manager, the payments to PERS will increase about $660,000 annually in about two years.
The staff has already contacted both the police officer association and the general employee association to review the two-year labor agreements and to re-evaluate the choice to freeze the merit system, Farfsing said.
Marsh, along with a number of officials, credited the staff for its ability to maintain services that are critical to the city as she reported positive projections for the general fund at the end of the fiscal year.
“We expect revenues to outweigh expenditures by $530,739,” Marsh said. “Please keep in mind that this does not include non-operating revenues and expenditures which are one-time revenues and costs but not ongoing….And as Ken and I have both pointed out, issues for this upcoming budget are formidable, and we potentially will need to use our reserves again.”
City Treasurer Emerson Fersch thought of one way to cut employee costs. He argued against allowing health benefits for Council members.
“In my opinion, you’ve got to draw the line with who’s covered by these benefits,” the city treasurer said, drawing a distinction between the full-time city staff and the city officials who serve on the Council dais on a part-time basis.
“People up here have other sources of income, or hopefully they do,” Fersch added. “Whereas the people that work here…what they’re here for is the security, and if we’re really concerned about the employees, it seems to me that we’d want to cut anything that threatens the security of that, and it may be one little thing, but it’s a step.”
In addition to the employee costs, Farfsing also reported briefly on one of the larger expenditures that will affect the budget. A new regional water board requirement for stormwater permits are projected to have first-year startup costs that total more than $750,000, the city manager said.
The Council voted Tuesday night to receive and file the mid-year budget review, and this vote is only a preview of more budget talks in the near future.
Budget planning for the upcoming fiscal year is already in the works. The finance director confirmed Tuesday that she will provide a staff report at the next Council meeting on the recommendations to move to a two-year budget process and to establish an audit committee.
Vice Mayor Ed Wilson, who is also an accountant, emphasized the importance of building up the reserve funds.
“It’s always good to have good news, but as an accountant, we’re always concerned with any surprises, good or bad,” Wilson said.
The next City Council will take place on Tuesday, April 16 at 7pm in the Council Chamber.