Budget

Ten years ago, the ‘great recession’ hit our city and over the next four (4) years we eliminated 50 positions leaving us with 182 employees in 2011/12.  In addition, we reduced compensation and benefits for new employees and consolidated and eliminated City services. From FY 07/08 through FY 11/12, the City made $6.5 million in ongoing reductions; 20% of the City’s General Fund.  Everyone – the community and our staff – felt the impacts of those reductions.

As you know, the City of Novato receives only 1% of the sales taxes levied by the State on goods purchased in our city limits.  So, to help with the recession, in 2010, the Council declared a fiscal emergency and placed Measure F, a 5 year ½ cent sales tax increase, on the ballot which passed by 58%, primarily to maintain our vital city services.  It was a stop gap measure on further reductions in service levels especially for our police, senior and youth programs, and maintenance of our parks, medians and streets.  The 5-year special sales tax increase took effect on April 1, 2011 and ended on March 31, 2016 generating a total of $22.5 million. During its five-year duration, from 2011/12 through 2015/2016, the City of Novato used $7.4 million; and, set-aside $3 million in a newly created “Risk Mitigation Reserve” and $1.7 million for funding the multi-year limited term positions and programs.  This leaves the Measure F Fund balance at $10.7 million prior to the approval of the 2017-2018 budget.  On June 27, 2017, the Council on a 3:2 vote adopted the 2017-2018 budget which includes using over $6.5 million of Measure F funding in one year – more than the City used in the last three fiscal years!

In November 2015, the voters approved Measure C which is a ¼ cent tax increase that provides an additional $2.5M/year for a minimum of 20 years for Novato services.  Since Measure C provides a more stable revenue base moving forward, the City Council can refresh the Fiscal Sustainability Plan and make important policy decisions that balance service levels with available ongoing revenues.  With Measure C in place, I am proud to say with confidence that Novato has a bright future.  Like many communities across America, we’ve worked hard to recover from the recession – and the hard work and dedication of the people who live and work here has paid off.

The City also receives about 7 cents for every dollar of property tax paid in the city limits which is the lowest level for all the eleven cities in Marin.  Apparently, the City Council during the 1970’s wanted to make sure that ‘mil rate’ (now called property tax) on properties in Novato covered the services provided.  Since the properties were increasing in value, the Council reduced the ‘mil rate’ several times.  When Proposition 13 passed in 1978, it froze all current ‘mil rates’ and the State redistributed the property tax amongst the special districts in Novato resulting in the City receiving 7 cents/dollar of property tax paid  whereas, the Novato Fire Protection District receives 14 cents/dollar.  For comparison purposes, the City of San Anselmo receives 23 cents/dollar and City of Mill Valley receives 26 cents/dollar of property tax paid in their cities.  So, our property tax revenues are the lowest of the eleven cities in Marin County.

There is no question; we have started doing things differently in Novato by implementing efficiencies so we can spend less while maintaining the essential services especially public safety.  For example, our engineers in the Public Works Department implemented electronic bid documents which provided significant cost savings for the City of Novato – about $40,000/year. We constructed our city offices, bringing the city staff back to our downtown, which saved over $100,000/month in rent.  We have installed solar units on many city buildings and converted all of our streetlights to LED saving on our electrical and maintenance costs.

Novato has a strong Emergency and Response Fund which currently has 18% of our General Fund for emergencies and any downtown in the economy.  In addition, the Council created a Risk Mitigation Reserve with $3M from Measure F funds which I advocated for.  This Fund was designed to be used  to ‘mitigate risk from economic recessions, pension rate and investment earnings fluctuations, unanticipated state takeaways, or unanticipated required expenditures due to changing laws or regulatory requirements’.

Since Measure F was supported by the voters in 2010, the City Council has been very cautious about the expenditure of Measure F funds.  Part of the reason for this caution has been a desire to have a long-term financial plan in place prior to making any large commitments of Measure F funds.  Unfortunately, on June 27, 2017, the City Council on a 3:2 vote approved the 2017-2018 Operating and Capital Improvement Budget totaling $69M for the City of Novato using $6.5M of Measure F funds – all in one year – leaving only $4.2M of Measure F funds for future years.  This $6.5M of Measure F monies is greater than what we used in the past 3 fiscal years combined – FY 2014-15 and 2015-16 and 2016-17.  In fact, since the inception of Measure F, the City of Novato has used $7.4 million over the last five years – whereas, the Council decided to use $6.5 million all in fiscal year 2017-2018!

I voted against the $69M budget for fiscal year 2017-2018, because the budget:

1. Uses of $6.5M of Measure F funds all in one fiscal year.  With experts predicting a future downturn in the economy, I suggested that we first establish a long-term financial plan to ensure that our expenditures to not exceed our revenues.  Since Measure F was passed, it has been used to balance our budget.  With the Measure F fund being reduced to about $4.2M of unallocated funds, it is uncertain how much longer we will be able to use it to balance our budget.
2. Adds 5 full time positions to the payroll – no additional sworn officers or maintenance workers, primarily administrative positions – bringing our total staffing to 208.5 FTE.  With this budget, we have replaced over one half (26.5) of the 50 positions eliminated due to the recession.  Over the last 2 fiscal years alone, we hired 14.5 positions – more than ½ of the positions added over the last six years. And, what complicates matters, is that of the 26.5 positions hired back, 12.5 are limited term positions with expiration dates fast approaching.  We do not have a plan on how those positions will be funded or eliminated when they come up for renewal.
3. Does not include a plan to address our growing unfunded liability for pensions and health care.  In 2006, after the City purchased a Pension Obligation Bond, our unfunded liability was close to zero.  Now, 11 years later it has grown to over $32M.  With CALPERS lowering their discount rate, it will not only increase our annual contributions, but also the minimum payment we make to pay for the unfunded liability.  It does not include a plan for reducing the overall unfunded liability – it will only grow over time.

We need to address these issues before the end of the calendar year so we can make adjustments to our 2017-2018 budget.

As we have experienced in the past, there will be another recession.  Experts agree that one is coming, but they do not agree on when.  Never-the-less, our City needs to do a better job to prepare so we do not have to reduce services and staff the next time a recession hits our community.  Novato has gotten through tough times in the past and we will again as long as we continue to work together on a plan that will allow us to weather those future storms.