The City of Emeryville held a series of budgetary workshops over the past few months. Within these discussions, it was revealed that Emeryville was in a bit a financial hole with a trajectory to be much worse off if the city does not right their ship. The city is facing a 1.2 million shortfall for this budget cycle with this disparity on a trajectory to reach an estimated six million by 2020/2021.
Council will meet tonight to review and make recommendations on how to close this gap including possible program/service cuts or creating additional revenue sources including the possibility of new taxes.
At the March 13th special meeting (viewable above), council received a presentation by Municipal Finance Consultant Susan Mayer who laid out our city’s current predicament. Mayer warned of impending costs and forces that could cause this gap to grow substantially. “This is an unusual position for your city to be in” she noted. “You have a smaller revenue pie but a strong demand for services.”
Mayer pointed out eroding revenues, cost pressures and impending cost adjustments from CalPERS (California Public Employees Retirement System) as contributing factors to this. “Pension costs are the elephant in the room” Mayer warned later in the meeting. “The increases are truly staggering.”
CalPERS recently lowered its investment returns assumption and revealed their pension plan is billions more in debt than previously forecast. This debt could lead to millions in increased pension contributions from local governments like ours. The City has already implemented a citywide hiring freeze.
It was sobering news for our council and our city. Emeryville has always prided itself as living within its means, providing quality services and boasting relatively less pothole filled roads and graffiti-tagged walls than our neighbors. Emeryville bounced back from the loss of redevelopment in 2012 that effectively cut their budget in half. Former City Manager Sabrina Landreth and a more fiscally prudent city council added a Real Property Transfer Tax (Measure V approved by voters in 2014) and a Development Impact Fee to shore up the budget and get it closer to the $40 million it currently is.
The city received kudos from Mayer for adopting a two-year budget forecast, funding unfunded liabilities and its maintaining healthy reserves for unanticipated public works issues. She cautioned the city on using onetime funds to fix ongoing structural deficits. In recent years, our city has actually maintained a budgetary surplus.
An “appetite” for programs and a forthcoming “Retail Apocalypse”?
Mayer gently scolded the council for its use of city personnel and vendors. “It is not an unlimited pool” she noted. “There was not an ability to fund all the services that were requested. You have some programs that are over budget. You have some programs where the costs estimates are understated.”
The City is coming off a two-year period where it implemented costly, unique programs including their 2015 “Living Wage” Ordinance and their pending “Fair Work Week” Ordinance. These two programs are expected to cost our city around a half a million to rollout and administer this year alone. The longterm impact of these two measures on Sales tax revenue, our highest source of revenue at over eight million dollars, is unknown.
Swiss financial services company Credit Suisse is predicting that as many as 25% of U.S. malls will close by 2022 amid increased pressure from online sales. The Atlantic and other publications have noted how new minimum-wage laws are squeezing retailers who are already under pressure from Amazon. Emeryville would be dramatically impacted by this if this unfolds as projected. If our region hits an economic downturn that many are anticipating, our economic troubles could be magnified.
“This Council has an appetite for programs” noted one source we spoke to who is familiar with the city’s finances. This source also noted that this was a wake up call for this council and they would need to rethink their approach for programs if they city was to continue to provide services as they are used to, or deplete their reserves. Another anonymous source expressed concern of a “domino effect” that Fair Work Week could cause if an anchor tenant like The Gap ever left Bay Street.
Additional revenues being considered including new taxes
Emeryville’s sources of revenue are many but are generally broken down into taxes, fees & grants. Increases in taxes requires a vote by the public while fees can be administered through our local government (i.e. fees imposed on developers for building). These fees can of course come with their own consequences such as reducing development and business growth. Grants can require staff time to research and apply and are reliant on other levels of government for approval.
New taxes being considered might include the possibility of a sales tax increase which is currently at 9.25%. Councilmember Martinez suggested possibly raising Emeryville’s Transit Occupancy Tax (our Hotel tax) and Utility User Tax. Councilmember Medina suggested raising the Business License tax which she referred to as “unbelievably low”.
Many small businesses noted the difficulty of doing business in our city at the recent Small Business workshop amid their own declining revenues. Raising their taxes as Medina suggested would seem counter to the “pro” small business image that our council is trying to craft amid a growing “Anti-Business” persona. Serving Mayor Scott Donahue also noted our City’s lower business taxes than neighboring cities but considered the economic advantage this brought our city.
Councilmember Bauters expressed the desire to place an infrastructure bond on the 2018 ballot. The idea of “land banking” (aggregating parcels of land for future sale or development) was also suggested.
Many residents and business owners have been clamoring for the implementation of a parking management plan that would presumably ease parking congestion and could provide a revenue source. This would of course require a capital expenditure and ongoing administration costs in addition to EPD staff. Council has proposed initiatives in the queue like a Cannabis dispensary license and Soda Tax that could collect a nominal amount of revenue … but could also add demand to city police services and administrative costs. Any new taxes could take as long as two years to implement and realize.
The Council expressed maintaining the allocated Economic Development budget to help explore additional economic revenues. Addition revenue “relief” could come from the two large developments in town that will come online over the next year including the Public Market Renovation and Transit Center projects.
Long term strategy needed
After discussion, council elected to utilize reserves to fund the current deficit that is expected to be about $530,000. One additional outcome was that the council voted to shift the budget cycle to align with the election cycle. This would presumably make budget priorities a greater talking point during the election process.
The Emeryville Budget Advisory Committee met two weeks later to review council’s proposals. They expressed concerns over the use of reserves, which are generally intended for infrastructure emergencies and times of “economic uncertainty”. They also expressed concern with the economic drag of the Child Development Center that receives heavy subsidies yet has run in the red year after year. An additional subsidy of $845,256 was approved last year despite this pattern. It seems likely that the ECDC will undergo drastic changes that could include privatization or contracting labor.
Council reconvened again on April 4th to review these recommendations and a revised balanced budget shown below. Financial Consultant Susan Mayer returned to evaluate staffs work and provide her insight. “What a difficult staff report tonight” she noted pointing out the “aggressive” revenue estimates that did not come to fruition.
Overall, Mayer was cautiously optimistic about our city’s financial prospects but warned of declining revenues. “Allocating resources is the toughest job I think you have in the budget process because you have competing needs. You have many programs, you have many citizens that you would like to serve in different ways. What is the pie that’s available and how are you going to split that pie?” Mayer also provided a recap of tools that could help restore a balances budget and referred our city to The League of Cities research that tracks and makes recommendations for new taxes and the appetite of voters to approve them.
After tonight’s 6pm presentation, Council will be tasked with deciding what cuts or other measures will need to be taken. They will reconvene on June 20th to discuss, implement and vote on these changes. Read tonight’s staff report that outlines what’s on the table in more detail.
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The City should contact the SEIU and demand the funding. We are funding their Minimum Wage Ordinance, their Fair Workweek, and the staff time supporting the SEIU. It was obviously their mandate, their law, and their marketing campaign.
It only seems fair that the SEIU should be paying the long term cost of its programs rather than the citizens of Emeryville.
Isn’t the SEIU also responsible for the obscene compensation packages and pensions that are driving the shortfall? I believe they are the union that “represents” a large part of the city staff.
It’s hard to underestimate the damage the SEIU has had on Emeryville and its taxpayers.
If the city wants to raise taxes, the city should simultaneously vote to reduce their compensation packages and pensions. Where are the long term budget studies that preceded the votes for minimum wage increases, Fair Work Week, approval of compensation packages, etc? How can losing our small businesses be a surprise? Deciding whether to say the Pledge of Allegiance at council meetings, and holding demonstrations for sanctuary city status are privileges that depend on the financial health of our city. It is irresponsible of the city trustees to have put Emeryville in this precarious situation. If they are surprised, they don’t deserve to be running our city.
Business taxes are ‘unbelievably low?’ That’s the craziest statement I’ve heard in a while. One of the reasons we moved our business out of Emeryville (besides the cost of living) was the incredibly high business tax. We’re a small business that relocated to San Diego and are saving thousands a year. Maybe it’s low for big businesses, but it’s burdensome for small businesses.
A new source of revenue could come from a vacancy tax. Doing so would incentivize economic activity over inactivity and increase sales tax revenues.
I’ve heard they’re exploring this. It’s hard to anticipate the impact that this would have. The City has created a fairly unfavorable environment for businesses with regulations and we have some structural challenges like gridlock, lack of parking and rampant auto burglaries that make us even less appealing. It’s hard to anticipate the results of penalizing landlords (many that were required or incentivized to include these storefronts as part of our development regulations) for not being able to find anyone to fill them.
Some on Council have also expressed exploring a ban on chain stores in some areas so we’re narrowing the type of businesses that could go in there. I personally would like to see the city provide support for small businesses the way they did with Arizmendi during the redevelopment era (about a half million in incentives) although with our current economic status, I doubt these funds exist.
There’s an article on Berkeleyside that covered Berkeley’s discussions on this 5 years ago:
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