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Mark Martinho ~ March 3, 2010
A Meeting with Redwood City's Mayor
Jeff Ira and some Observations. |
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Redwood City's Mayor Jeff Ira came and met with a few of us in the real estate business today to tell us a little bit about what is going on in Redwood City and answer some questions. The following were some of the main points from our conversation and my own observations from reading the city’s budget amendments.
Redwood City is in some trouble
In the next 4 years, some $10-14M of expenditures need to be cut from the city budget. Currently 81% of the budget is paid out to salaries, this of course will mean less folks to provide us the services we depend on. One of the biggest steps being considered to correct the budget problem is the creation of a 2-tier retirement system. Future city employees will not enjoy the same generous retirement benefits that current ones receive. As I have previously stated and the Mayor repeated, the current retirement system will eventually bankrupt the city. |
 Redwood City Mayor
Jeff Ira |
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Another budget cutting possibility is creating a metropolitan police and fire department to be shared by all the cities within the county. Currently about 55% of Redwood City’s budget goes towards paying the fire and police departments. Such a system could save all communities money as the redundancies in overhead could be removed from these departments.
City Employees doing their Part
Meantime, most of Redwood City’s employees agreed to salary freezes last year and the Mayor hopes they will be equally generous this year to allow us to dig out of this hole. The salary freeze was paramount in curbing our deficit since 81% of the expenses are salary related.
Our Priorities
While the past 6 years, our revenues only increased by 25%, the following departments increased their expenditures by 40-50%: the offices of the City Council, City Manager, City Attorney, plus the Police and Fire Department. Departments like Parks/Recreation, Library, Public Works, and Community Development all only experienced about a 20% increased in their budgets in the past 6 years.
Some criticism – No one ever heard of the economy being cyclical? |
In the past six years the city’s income increased 25% (assuming the city meets its 2009-2010 revenue projections) while its expenditures went up by 31%. In the previous five years, revenues and expenditures were growing at about the same rate, our current deficit was of course due to the economy tanking.
The problem I have is the revenue sources. When you look at all the revenue sources over the past six years, 91% of revenue growth came from property taxes. The city anticipated 5-7% growth in property taxes each year. This can only happen in periods of hyper appreciation. Consider the fact that property taxes can only increase 2% per year by law. |
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The remaining 3-5% growth in property taxes revenues had to come from home improvements and from the reassessed values when a property is sold. I speculate that for the city’s property revenue growth estimates to work, homes would need to appreciate at least 15% per year. While this happens from time to time, the norm remains about 8% appreciation in real estate values when you account for the negative and flat periods. The council had to know that this cash cow would soon run dry. |
The other Shoe - Retirement Liabilities
Part of our budget crisis is a combination of retirement benefits and the stock market’s collapse. The city has to pay for employee retirement benefits which are managed by the California Public Employees Retirement System (CalPERS) fund. The problem here is that retirees are guaranteed a fixed income. Since our stock market has declined some 35%, the CalPERS fund is reported to have also declined some 25%. If the fund can’t pay its retirees, the State will come back to the communities to ask for more money, this will likely be happening going forward.
Some Good News
There was some good news in local business, a few software companies decided to lease some 25,000 sf of downtown space. This will bring in some 300-350 employees to work in Redwood City which should help other businesses as these folks spend some money here.
Conclusion
I am optimistic that the city is tackling some of its biggest deficit issues head on (i.e. police and fire pay and retirement benefits), but of course I am concerned about how long it could take to implement such major changes. Primarily since many of these changes involve multiple communities working together and some giving up of turf for the common good. Let’s see how it plays out. At least, I have to admit that I have confidence in our current Mayor Jeff Ira to address the serious issues.
Advice to our citizens
I recognize we often judge the misfortunes of others as small problems, until it happens to us, then it’s a big problem. However, much of the time of the city’s staff is often taken up by putting out ‘small’ fires. In this time of great adjustment, perhaps while we continue to demand our city provide us the services we pay for, let’s try to take up a little less of their time, so they can focus on the big issues we collectively need solved. |
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