Last night, we went through the Potential Budget Balancing Strategies line item by line item, with the exception of the “Meet and Confer” items that include a “bucket” of potential union concessions. These concessions cannot be imposed by the City Council without a potentially lengthy process that potentially could extend far beyond June 30. From a practical standpoint, they would require rather prompt union cooperation, which we are hoping to get.

Our projected deficit for FY 2020-21 stands at $27 million. The sum of the items below is about $19.5 million, leaving us $ 7.5 million short. We are not going to have a balanced budget without either union concessions or layoffs. It would require laying off about 40 positions to make up the $7.5 million. We are at the rock and the hard place.

More than any other item, the City Council has received pleas not to close the library. I don’t think the main library will be closed, but the two branches may be closed along with some service reductions. Closing the branches and reducing some services would save about $1.4 million. This is not popular, but the alternative is laying off 7-10 employees in some other department. These are hard choices.

Just yesterday, the unions circulated a plan (see below) that ostensibly would balance the budget with no layoffs, but it doesn’t add up. See my comments in red below. A potentially controversial item is reserves. The unions want to spend down a projected FY 2019-20 year-end reserve of $12 million by $5.5 million. The City Council does not favor this. There are a number of good reasons that reducing reserves to $7 million is a bad idea:

• This would reduce reserves to the equivalent of about two weeks’ operating cash flow. If we had another emergency, like a fall COVD-19 resurgence, we could be out of money.
• Our bond rating would probably plummet, and this would cost us even more in the long run.
• Cash in reserves is also used to cover inter-fund transfers and temporary cash flow shortages.
• Our policy is a 15% reserve level; this would reduce it to about 4%.

Union Memo

This memo provides a brief overview of cost-saving measures that avoids direct cuts to services and staff in Richmond

Cost Saving Measures Already Identified:
1.       Vacancy Savings/Hiring Freeze:
·         $9,811,159 – General Fund, Annualized Salary and Benefits[1] If you add up Police (Line 9 - $2,374,882 and Line 13 - $6,325,118), the total is only $8,700,000, not $9,811,159.
·         $3,339,753 – Non-General Fund, Annualized Salary and Benefits[2] This doesn’t reduce the General Fund

1.       Postpone I.T. desktop and infrastructure refresh - $4,330,000 – General Fund This results in a debt service over 5 years of $1.3 million a year, but the City Council favored it.

2.       Reduce Insurance Reserves - Reduce insurance reserves to 70% confidence level, which reduces general liability/workers’ comp allocations: $3,029,873 – General Fund This is not a real reduction. Currently, our usage is trending at 78%. Projecting 70% is just wishful thinking.

3.       Postpone vehicle/equipment replacement: $1,149,000 – General Fund – DPW The City Council favored this.

4.       Use Reserves: $5,459,522 – General Fund – Budget Reserve The City Council did not favor this.

Pursue Funding Opportunities in the CARES Act. 
            Even though Richmond’s population is too small to receive stimulus funding directly, an estimated $15 billion will be allocated to the state of California.  The LAO estimates Contra Costa County is estimated to receive $201.7 million. City administration should purse these funds through State and County partners. This is speculative. You can’t build a budget on this unless it happens before June 30.
            There are additional funding opportunities the City could apply for to be reimbursed for Law Enforcement expenses and Transit expenses in response to the pandemic. This is speculative. You can’t build a budget on this unless it happens before June 30.

Direct Staff to refinance debt
            To take advantage of the historically low interest rates Staff will look into this, but it can’t be done before June 30.

Explore New Revenue Opportunities for the November Ballot
•       Progressive Business Tax Reform – Gross Receipts Tax: This is speculative. You can’t build a budget on this.
•       Provide small business relief and raise ~ $5 million – $10 million annually.
•       Vacant Parcel Tax: This is speculative. You can’t build a budget on this.
•       Capture value from land sitting vacant and raise ~ $3 million annually.
•       [1] City of Richmond, CA, Vacancy Report, 4/27/2020.
•       [1] City of Richmond, CA, Vacancy Report, 4/27/2020.