• “Grim Five-Year Fiscal Forecast Prompts Early Planning for 2016-17 Budget”
• “Richmond receives sobering prognosis of its finances”

Others have characterized this as a “gotcha” moment where the City has been caught obliviously heading down a road to disaster until jerked up by a reality check from an outside expert. The actual reality is that the city manager, the Mayor’s Office and City staff have been diligently and responsibly laying the foundation for budget reforms for nearly a year.

The Richmond Charter states in III-A.2.b: “Policy, Program and Budget  ... The Mayor shall work with the City Manager in preparing an annual budget for submission to the City Council.” The Mayor’s Office has taken this charge seriously and has dedicated its resources to partner with the city manager to resolve budgetary issues that have (I believe unfairly) plagued the City for the last year, including downgrades by bond rating agencies, threats of audits by two State agencies, a ballot measure to control compensation of City employees  and continuing criticisms by some City Council members and members of the public.

Far from being asleep at the switch and as directed by the Charter, the Mayor’s Office has been extremely proactive in working with the city manager on fiscal and budgetary matters. I particularly want to recognize the Mayor’s Office staff in their role of facilitating the assistance of the National Resource Network, an effort that began in May of 2015 and saw its first results in the presentation of December 15, 2015. Finding outside assistance at a bargain cost to the City of Richmond has been essential, as City staff, particularly the city manager’s staff, has had to devote substantial resources over most of this year to other time consuming, non-budgetary, initiatives including the Promise Program and rent control.

Following is a chronology of how the Mayor’s Office provided a leadership role in budget issues in 2015 and how the National Resource Network came to assist Richmond.

In April of 2015, at my invitation, Dan Borenstein of the Contra Costa Times provided a presentation on unfunded pension and OPEB (Other Post Employment Benefits. The same month, the Richmond City Council’s highest priority was rent control.

In May of 2015, when the City Council was still focused on not only rent control but also mind control, and Moody’s downgraded Richmond’s bond rating, David Gray of the Mayor’s Office prepared and submitted an application for technical assistance to the National Resource Network, a program of the White House’s Strong Cities, Strong Communities (SC2) initiative that partners with American cities to help them identify and implement new and practical solutions to facilitate their path to economic recovery and growth.

During June 2015, while rent control continued to dominate the agenda, the East Bay Express was editorializing against austerity, everyone wanted a piece of Richmond Promise and some Council members were back peddling from space weapons, Alex Knox of the Mayor’s Office attended a conference paid for by the National Resource Network in Miami, FL, that built on the success of the NRN inaugural event in Chattanooga, bringing together leaders from dozens of cities around the country to share best practices, brainstorm solutions to shared challenges, and learn from national experts in economic development, local government operations and management, housing, workforce development, and other key topics. Meanwhile, the City Council passed a balanced budget for 2015-16.

In July 2015, representatives of the National Resource Network made a two-day visit to Richmond to meet with the city manager, City staff and Mayor’s Office staff. As a result, a tentative work plan for technical assistance was prepared that included:

Construct a Five-Year Budget Model and Provide Support to Finance Staff In order to establish the size of the City’s structural deficit, major cost drivers, and projected current and future costs of City priorities, the Network will work with City staff to construct a five-year budget forecasting model.  This excel-based budget model will reflect the City’s current financial structure and incorporate anticipated future changes in revenues and expenses.  The Network will also work with staff to define several alternative revenue and expense scenarios to provide a range of possible budget outcomes over the forecast period.  Special attention will be paid to Finance staff training and mentoring, to ensure that staff will be able to deploy the model as strategic analysis tool on an ongoing basis and update the inputs as necessary. The goal will be to generate a robust and responsive budget analysis tool and build staff capacity to provide strategic budget information to policy makers. 

Phase II would be to Develop a Fiscal Sustainability Plan Building on the five-year budget model and associated findings from Phase I. The Network will develop a long-term fiscal sustainability plan to ensure that the City is able to invest in priority policy areas while maintaining fiscal solvency and taking steps to improve its credit rating. The plan will articulate the revenue and expense options and implementation steps that would address existing and anticipated fiscal issues, while creating budget room for other priorities such as deferred infrastructure investments and community development activities.  Through a clear analysis of budgetary trade-offs, the plan will lay the groundwork necessary for productive Council decision-making on City priorities and spending.  

The National Resources Network was also asked and agreed to assist the City in dealing with HUD-related issues and freeing Successor Agency properties from State Department of Finance control and into the marketplace, particularly those suitable for affordable housing.

Meanwhile, in July 2015, the fervor to pass a rent control ordinance dominated the City Council, and carried into the first week of August. While the City Council was mostly debating rent control, Moody’s rewarded the City with its second downgrade of 2015.

In September 2015, the Mayor’s Office received the draft memorandum of understanding from the National Resource Network that included The Network’s proposed scope of work in Richmond, which had five deliverables:

• 1. Developing a base model of the city’s financials with historical budget data and revenue and expense roll-ups into City-defined budget categories;
• 2. Developing a baseline 5-year budget forecast model;
• 3. Developing a forecast model loaded with budget initiatives that can be expanded and run by City staff;
• 4. Presenting the budget model results and recommended actions to the City Council; and
• 5. Submit written request for housing and community development technical assistance to be submitted to HUD.

The value of the direct assistance was $110,000, with the Network funding 75 percent of the costs and the City of Richmond funding  $27,500. By the end of September 2015, the City Council approved the MOU, and the NRN began work on the financial model that was ultimately presented to the City Council on December 15, 2015, by Russ Branson of Public Financial Management, Inc., as part of the  National Resource Network

The presentation was divided into three major sections: 1) economic context, 2) baseline forecast, and 3) alternative budget outcomes.

The economic context consisted of a comparative analysis of financial indicators (i.e. income levels, unemployment, home values, revenue per capita, etc.) in Richmond compared to neighboring cities.  The baseline forecast projected the City’s financial position over the next five fiscal years.  Alternative budget outcomes listed possible considerations for reducing expenditures and increasing revenue in order to avoid deficit spending.

The financial data from the five-year financial forecast show that there are still some difficult budget decisions ahead for the City Council, especially in FY 2016-17.  The data also show that when the budget is “reset” to a balanced level in FY 2016-17, the projected moderate revenue growth is at a level that can keep the budget in balance for the remainder of the five-year period.  (Obviously, factors can change that might affect this forecast.)

The presentation by Russ Branson, (Five-Year Forecast) was preceded by a presentation by City Manager Bill Lindsay (Status Report on City Finances).

Although some critics have characterized the two presentations as conflicting, that is not at all the case. Lindsay’s presentation was about the status quo, showing that the City is recovering from the recession and that revenues and cash reserves are positive and trending upward. Branson’s presentation was about the future, indicating that some tough decisions are in order to maintain fiscal health.

As mayor, my plan is to continue to work hard on budget reform with major City Council presentations, discussions and policy direction every month of 2016, leading up to a sustainable budget to be adopted in June. This is not going to be easy, but it is essential, and we will get it done.

Below are stories from Richmond Standard and Contra Costa Times.

Grim Five-Year Fiscal Forecast Prompts Early Planning for 2016-17 Budget

By: Sean Pyles

Richmond could be nearly $40 million in debt by 2021, an independent financial consultant told City Council at a presentation of the city’s five-year financial forecast on Tuesday. 

The news of financial troubles ahead could be improved, according to the consultant, if the city makes hard decisions now to align expenditures and revenues — an approach the city appears prepared to take. 

“Like a lot of cities nationally, Richmond has been scrambling to maintain services with budget cuts,” said Russ Branson, a senior management consultant with Public Financial Management who presented the five-year financial forecast. “The fight is not over yet.”

Branson’s firm, in partnership with the National Resource Network, an organization dedication to helping cities overcome various challenges, spent the past few months surveying Richmond’s finances in the current economic climate to identify areas of concern and where there is room for improvement. 

Among the key issues identified were volatility of the city’s general fund revenues over time, anticipated significant increases in CalPERS, significant overtime pay for city employees, and revenues that failed to keep up with expenditures. 

Without any salary increases, the city would have a $22.7 million deficit by 2021, a number which would jump to $39.4 million if the city sets aside the recommended 10 percent for reserves.

If the city grants an average 1 percent salary increase, the base deficit would be $35.2 million by 2021, and could be $52.4 million if the city sets aside the 10 percent for reserves.

Setting the city on a corrective path will be a challenge, Branson explained. For fiscal year 2016-17, Richmond needs to increase revenues by 7.6 percent to balance the budget. Additionally, the city will need a reduction in expenses or increase in revenues of $8.7 million annually. 

The consultant recommended the city consider cut funding for public art, reduce overtime by 25 percent, and eliminate a number staffing expenses, including reducing a workforce that has already been slashed by 27 percent since 2007. The various cuts would save the city $14.7 million in the next fiscal year’s budget.

Adding pressure to the conversation was Branson’s acknowledgment that the United States is closer to the next recession than the end of the last one. The US has seen 78 months of growth, while the average cycle is a little longer than 58 months.  
“The city has some hard choices to make in the next year, and it’s important to make them soon,” Branson said. “The next six months could lead to increased stability or distress.”

The five-year forecast came after a presentation from Richmond City Manager Bill Lindsay, in which Lindsay outlined a number of one-time revenues which would supposedly put the city on a strong financial track in the future. The two varying pictures of the city’s finances was reminiscent of a recent conversation at a meeting of the Richmond Heights Neighborhood Council in which Lindsay and Councilmember Pimplé sparred in their assessments of the city’s financial situation. 

At the end of Branson’s presentation, Mayor Butt emphasized that this would be just the first conversation on the city’s finances before next year’s budget is approved in June 2016. 

“We’re going to have a major discussion of fiscal issues at least once a month,” Mayor Butt said. “This is not the end, this is just the beginning.”

The monthly conversations ahead of the fiscal year 2016-17 budget is a shift from years past, where initial budget discussions happened mere weeks before the budget was to be approved.

“These conversations will get more detailed and get more contentious as the months go on, and hopefully we’ll hang in there and get through this together,” the Mayor said.

No decisions were made regarding the city’s budget during the conversation on Tuesday, though it is expected that many difficult decisions will be hammered out in the upcoming monthly discussions.