Santa Paula: Measure T Commission Faces Stark Realities of Budget

 By Sheryl Hamlin

The second meeting of the Measure T commission was held on June 14, 2017. The inaugural meeting was reported here.

Chair Kristin Majda reported all five members present along with staff members Rick Araiza, Interim City Manager, Mike Sedell, former Simi Valley City Manager and consultant, James Cotti, city attorney, Ed Mount, Community Services Director, Sandra Easley, Finance Director, Ron Howard and John Ilasin, Public Works, Luis Esparza, SPFD and Steve McLean, SPPD Chief. There were nine citizens in the audience, including Council Member Garman who did not stay for the entire meeting.

Report on Commissions in Other Jurisdictions

Jose Melgar’s action item from the previous meeting was a report on similar commissions in other areas. He reported on the Measure J in Palm Springs, saying that the oversight commission in that jurisdiction was using collected funds as the measure intended for the downtown and will distribute the report. Rick Araiza noted that the Ventura Measure O Commission was recently inaugurated and this too should be watched.

Although not reported by Mr. Melgar, both the PS Measure J and the Ventura Measure O are General Taxes. The PS Measure J is identical to the SP Measure T in that both ballot measures stated “priorities”. Measure O simply said “maintain city services”, so it was more broad than either SP Measure T or PS Measure J. The PS Measure J Commission meets monthly while the Ventura Measure O meets quarterly, which would be a minimum because the sales taxes are received in quarters.

Measure T and the Budget

Mike Sedell reiterated a concept that he has used several times before saying “Santa Paula is a full service city with a contract city revenue”. Unfortunately he did not quantify this description or give a financial model that would fit a contract city, although it is generally understood that a “contract city” does not have employees, but deploys contractual services, which saves on employee costs, such as pensions, benefits and workers’ compensation, an amount over which a city has little control. Note that previously Sandra Easley reported that the proposed budget has $718,855 in such costs, which are out of the city’s control at this point.

Mr. Sedell also reiterated the precariously low state of the city’s General Fund reserves which could be depleted in two weeks saying “the city needs to start doing things differently” and that “obviously cuts are needed”. But, of course, there are no easy cuts any more, he said, and the budget is “not looking good”. He said the deficit had grown to $1.8 million from the $1.5 million stated at the last council meeting, but did not elaborate on the increased deficit.

Measure T has the potential to help the deficit temporarily, but because employee costs are growing faster than revenues, the situation will reappear until this structural imbalance is rectified. The structural imbalance concept was not discussed at the meeting.

The Commssion discussed the issue of using Measure T funds to fill the budget gap or for new services. Mr. Sedell said that the council will eventually decide and reminded the commission that the majority of the budget is police and fire.

The Commission realized that recommending before a budget is presented is challenging, but Mr. Sedell said that the Commission must recommend to the council prior to the June 26th council meeting where the FY 2017/2018 budget would be approved.

Sandra Easeley confirmed that the Measure T funds, which are expected to be $135,000 for the current fiscal year and $2.050 million for the next fiscal year, would be kept in a separate subaccount of the General Fund which will be auditable.

Mr. Sedell is recommending an interim budget rather than a Continuing Resolution (CR), as suggested by Vice Mayor Gherardi, saying that a CR allows overspending, where an interim budget gives the council more discipline.

Santa Paula Police Department

Chief McLean reiterated the report he gave to council previously, However, at that time, he said seven of the 31 officers were out on disability, now it is 8 out of 31 saying “some may never come back.”. He indicated the city was still paying salary and benefits for these officers, but did not offer a time limit for this period of leave nor did he offer information on the cost to the city of these payments. With 25% of the SPPD unavailable for work, the budgetary issues are obvious, as well as the safety of the city. Do all cities budget for a police department with 25% of its force on leave? Do they all supplement with overtime as Santa Paula does? A member of the SP POA spoke saying that many officers are looking for work elsewhere where higher pay is offered. And, according to a report distributed by Chair Majda, “the police would like “30% increase in pay over three years costing about $470,000 to retain current officers.” That report was distributed in hard copy only.

Santa Paula Fire Department

Luis Esparza summarized reports on the fire department funding which have been reported here. The Commission discussed the timeline with respect to LAFCO. Chief Esparza noted that originally the goal was a September 2017 annexation to coincide with the end of the SAFER Grant, but now it appears that October or November is more likely. Mr. Cotti said that no Measure T funds would go to fire if the annexation were approved, yet Mike Sedell said that the first year would be challenging, because the city would have to pay VCFPD directly for a partial year. Each month without the SAFER Grant, explained Chief Esparza, costs about $39,000.

In Chair Majda’s report, she suggested that the unfunded liabilities surrounding the annexation had not been thoroughly vetted. Mr. Sedell said that more would be available in the Saturday, June 17th Special Budget meeting.

Chair Majda’s distributed report indicated a year one VCFPD cost of $2.8 million which is not correct. In the initial presentation by Chief Araiza, the full first year was estimated at $3.135 million.

The $3.135 million initial estimate makes sense considering how the county calculates the tax sharing using increments and factors. The current Santa Paula tax increment is about $19 million of which Santa Paula is allowed a slice amounting to .2088 or $3.9 million. If the VCFPD is to get .165 of $19 million, this would equal $3.135 leaving Santa Paula with an allocation of .0438 or $832,000. Read more here about this calculation. The tax consultants used by the city have forecast $3.850 million for FY 17/18 with an unexplained uncollectable amount of $326,000, as presented by Director Easley at the May 25th budget meeting. Note, none of this was discussed or explained to the Commission.

Mike Sedell said that the spreadsheets distributed in print at the May meeting have been completely redone for the Saturday meeting.

Public Works Department

John Ilasin, interim Public Works director, reported on street repairs, because this was one of the Measure T priorities given in the ballot measure. He explained that no General Funds are used for the street repairs now. They are piggy backing with the water and sewer repairs. Where there is a water or sewer repair, they are repaving the entire street.

He said that water and sewer “were as bad as the streets”, presumably referring to the delivery infrastructure of these systems. He showed an engineering report which identifies 99 streets at or below the minimum acceptable level. Presumably this report was derived using the Pavement Management Software acquired by Brian Yanez, the previous Public Works Director.

The funding sources will be the 2010 bonds, TDA funds, and the recently passed SB 1 Gas Tax which is supposed to generate funds for street repair. Sandra Easley said that SB 1 could generate $335,000 the first year and up to $670,000 for the next year and perhaps $1.7 million when fully funded.

There was a discussion about the bonds used for these repairs. Neither the Finance Director nor the consultant described the actual situation correctly. Here is the situation as reported in the most recent Audited Financial Statement:

2010 Water Revenue Bonds

In February 2010, the Santa Paula Utility Authority, the “Utility Authority” (a component unit of the City of Santa Paula) issued $55,715,000 aggregate principal amount of Water Enterprise Revenue Bonds, 2010 Series, with proceeds used to effect the advance refunding of $25,700,000 of outstanding Santa Paula Public Financing Authority Water Revenue Bonds, Series 2003, finance certain improvements to the Authority’s water system, fund a reserve account, fund capitalized interest on the non-refunding portion of the Water Bonds and pay costs of issuance for the Bonds. Of the $57,570,826 net proceeds from the 2010 Bonds, $27,483,814 plus an additional $1,160,572 of 2003 Bonds reserve fund monies were used to purchase U.S. Treasury Securities – State and Local Government Series. Those U.S. Treasury Securities – State and Local Government Series were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 2003 Series Bonds. As a result, the 2003 Series Bonds are considered defeased and the liability for those bonds has been removed from the financial statements.

Note: that the defeasing of bonds is a legal Ponzi scheme which has been reported previously. By taking half of the 2010 proceeds to pay off the 2003 bonds, the city effectively has the use of only one half of the $55 million raised in the 2010 offering. This also doubles the effective interest on the 2010 bonds. The balance of the 2010 funds should be available at year end.

Community Services

Ed Mount presented a similar report which was given to council previously with the addition that his department had incurred massive cuts in 2005, an amount which was not given in the report.

In her distributed report, Chair Majda proposed a “Needs Analysis” to determine what needs exist and what services are already in place, as well as an oversight manager, who will coordinate services from various agencies such as the Community Services Department, SPUSD, SPLTH, First Five, Preschool programs, and Boys and Girls Club.

Public Comments

Realizing Public Comments had been overlooked, three members of the community spoke. Connie Tushla asked for clarification of the bonds. The SPPOA representative warned of potential loses in the force due to salaries. And Richard Rudman, who worked on both the failed Measure F (2014) and the successful Measure T (2016) said that the commission had to take the final before attending the course, which was a metaphorical way of explaining the challenge of recommending in a fluid situation.

Discussion

Commissioner Chacon made an astute observation saying that the Measure T funds would just be like any grant unless made in perpetuity.

Commissioner Flores stated that Measure T was misrepresented to the voters. He said it was not represented as a budget balancing tool.

Chair Majda asked if members wanted to share their current thoughts on distribution. Both Commissioners Chacon and Flores wanted to wait until the next meeting. Commissioner Melgar said he was inclined to allocate 50% to the police, 20% to the fire, 20% to the Community Services and 10% to the streets and in the event the annexation moves forward, he would split the fire between Community Services and Public Works for streets. Commissioner Sobell said he would use $100,000 to tund the Assistant City Manager, $1 million to the SPPD, $400,000 to Community Services for youth and $300,000 to the streets and $300,000 to the fire totaling $2.1 million. The chair stressed the need for an integrated program for youth services. None of the commissioners suggested putting any of the monies from Measure T in reserve.

Reporting

The Commission agreed that a single report would be delivered to the council and chose June 21st at 7:00 pm for the next meeting.

The Elephant in the Room: East Area 1

Revenue from East Area 1 was mentioned numerous times. Limoneira had previously given a build out schedule, but Mr. Sedell pointed out that they may encounter the next recession. Additionally, as was pointed out to City Attorney Cotti after the meeting, that nothing will happen until Limoneira obtains this 401 permit which is still in denial by the Waterboard. Note too that there are zero funds in the FY 17-18 forecast as Limoneira revenue and no dates for the East Area II commercial.

The meeting was adjourned at 10:30 pm, 3+ hours after the 7:10 start of the meeting. There was no audio or video of the meeting. The Commission sat around a rectangular layout rather than using the dais, which was difficult to hear because there were only two microphones on the long table. City Clerk Blanco took minutes.

For more information about the author visit Sheryl Hamlin dot com.


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