Back in 2020, the California State Auditor deemed the City of Richmond the 5th most financially at risk city in California and the #1 risk for unfunded pension liability. Yesterday, June 30, 2021, the Joint Legislative Audit Committee of the California Legislature voted unanimously to direct the state auditor to conduct an audit. See https://www.auditor.ca.gov/local_high_risk/dashboard-csa and State Auditor Deems Richmond ‘High Risk’ for Financial Distress
Figure 1 – From https://www.auditor.ca.gov/local_high_risk/dashboard-csa
Hopefully, the audit will flush out the two competing narratives about Richmond’s financial condition. One narrative, espoused by the RPA City Council majority and their allies such as SEIU 1021 and IFPTE Local 21, is that the City of Richmond is awash in money with a bright financial future and needs to conduct a spending spree for higher employee compensation and benefits, more projects and programs, litigating Campus Bay and Point Molate, and hiring additional employees while eschewing layoffs.
The other narrative is that Richmond’s financial future is bleak without major reorganization and restructuring that may include reduced services and fewer employees. Indeed, one of the slides from the June 29, 2021, budget presentation noted, “City continues to face a structural budget deficit.”
Richmond’s weak City Manager Laura Snideman is having a hard time balancing her instincts to right-size the budget through some austerity against pandering to the RPA City Council majority that keep her employed with a lucrative $342,868 contract.
Figure 2 - Slide form June 29, 2021, budget presentation
Following are some of the danger signs along Richmond’s current financial trajectory:
- In 2020, Richmond had a net pension liability of $330,395,675 (California State Auditor - Local Government High Risk Dashboard). The pension liability has increased $23 million since 2015. Pension payments constitute $39 million annually of the general fund budget and are growing.
- OPEB has increased $21 million since 2015.
- While new sources of revenue have been developed, such as Measure U, commitments for expenditures have outstripped revenue projections.
- Total employee benefits are at 83.3% of salaries.
- The General Fund has written off $3 million of Richmond Housing Authority (RHA) debt and anticipates writing off another $12 million while continuing to subsidize the RHA by millions of dollars a year.
- The finance director has taken an indeterminate leave of absence.
- Although the position and compensation study is not expected to be completed until September, it is anticipated that it will indicate employee compensation is well below market, putting on pressure to increase compensation by double digits.
- Both the city manager and City Council have resisted updating the City’s 5-year financial forecast, anticipating that it would carry unwelcome bad news.
- The City Council has made it clear that they will not tolerate any layoffs.
In response to a request by the state auditor to comment at the June 29 hearing, City Manager Laura Snideman prepared the following that paints an unrealistically rosy picture while ignoring her own staff’s admonition that “City continues to face a structural budget deficit.”
Richmond remains focused on ensuring a structurally balanced budget and long-term fiscal sustainability under the new City Manager. Reserves have been improving, bond ratings have increased, a new revenue measure has passed, another revenue measure is under consideration, and outside consultants have been hired to detail options that would make significant positive improvements in the financial situation. City staff believes that the audit is not warranted at this time and would be duplicative of current efforts and a serious strain on multiple resources, including staff time. If the State sees the situation differently, delaying the start of the audit until early 2022 would be important so as not to duplicate current staff efforts.
Not only is the City overspending, but services are continuing to deteriorate. Weeds and trash at streets, medians and parks are getting worse all over town. The condition of streets is the worst since 2016. Crime is on the rise, with 12 homicides already only half way through the year.