Piedmont’s financial position, year over year, can be described as “STABLE” at best.
Maintaining stability requires significant discipline and focus and we have done a good job of it. In recent years we have been working hard to look beyond simply maintaining stable services, and have been exploring opportunities to meet the needs of the future and to improve both the quality and delivery of services.
Piedmont is facing, and will continue to face, significant and costly challenges that will need to be addressed – and most are related to the condition of public facilities and infrastructure.
Relative to the City Budget and our ability to make needed investments, it is important to recognize that Piedmont’s General Fund is dominated by property-related taxes, which make up nearly 70% of total revenue. Property-based taxes are fairly predictable, with the exception of the Real Estate Transfer Tax.
Because City revenue is derived primarily from property-related taxes we are able to make long-term budget projections with a good degree of confidence; additionally, it limits our exposure to the risks associated with significant swings in revenue, such as those experienced by cities heavily reliant on sales taxes.
On the downside we have little ability to increase revenue to the City’s General Fund in any meaningful way — absent voter-approved increases in the rate of the Municipal Services Special Tax, also known as the Parcel Tax, or in the Transfer Tax.
For these reasons, we very purposely
- focus on the delivery of basic services and core programs;
- budget carefully and conservatively; and
- work diligently to safeguard our financial position by mitigating, to the extent possible, the impact of rising expenses which the City has little control over – particularly CalPERS related benefit costs which constitute an unfunded liability of just over $25 million.
On this latter point, the Council has proactively established a program of pension cost-sharing with employees and has curtailed retiree medical benefits for new hires.
These two initiatives, taken together, slowed the growth rate of our Underfunded Liabilities and will save the City millions of dollars in benefit-related expenses over the years to come.
Another significant action to buffer the effects of rising pension costs was the establishment of a Pension Rate Stabilization Fund, also known as a Section 115 Irrevocable Trust Fund, with the Public Agency Retirement Services – or PARS.
To date, Council has approved a total transfer of $2.75 million to PARS from the General Fund. One key benefit of this initiative is that funds deposited with PARS may achieve higher earnings due to less restrictive investment policies than apply to City funds invested in Local Agency Investment Fund.
As a result of the CalPERS decision to reduce the planned rate of return (Discount Rate), the City’s annual pension contributions are projected to increase from the current $2.2 million (7.5% of City revenue) to $5.5 million (13.3 % of City revenue) by 2029. This equates to a cost increase of approximately 132%, while City revenue over this same 10 year period is estimated to increase by only 35%.
As soon as 2023, and potentially continuing through 2031, the increase in mandatory pension contributions is projected to result in General Fund expenses exceeding revenue. When we face these net-negative revenue years, the City will be in a position to stabilize the General Fund by drawing down on its PARS account to pay pension costs.
Overall, prior City Councils and the current Council, working together with staff, have applied wisdom in managing the City’s limited financial resources. Piedmont now has a modest Reserve of just under $5 million, which represents 17% of our operating budget. Absent a catastrophic event, that amount should be of significant help in responding to an emergency or addressing unforeseen circumstances.
While there are no established policies to guide what constitutes “reasonable”, the reserve for the City of Piedmont is restricted by the City Charter to no more than 25% of the Operating Budget.
To put our City’s reserve in perspective, at the end of last fiscal year Emeryville, with a population similar to Piedmont’s, maintained a reserve of $30.3 million, which equates to approximately 76% of their General Fund; Albany’s was $8.8 million, which is 45% of their General Fund; Berkeley had a reserve of $84 million or 55% of their General Fund; and Oakland’s was approximately $150 million or 24% of their General Fund.
In addition to maintaining a modest reserve, the City has been making consistent, long-needed transfers to the Facilities Maintenance and Equipment Replacement Funds, and has also made much needed investments in our IT Systems, with a goal of bringing our use of technology into the modern era.
At the start of this Fiscal Year the Equipment Replacement Fund is projected to have a balance of $2.75 million – which, assuming we continue to make the planned annual transfers from the General Fund, should be sufficient to address the schedule for equipment replacement into the future.
The Facilities Maintenance Fund is projected to have a balance at the start of the year of only $4.8 million. This amount is far short of what is required to address accessibility, life-safety, life-cycle, and efficiency issues of our city’s facilities and property.
Piedmont’s facilities, like so many of the homes in Piedmont, are old and expensive to maintain. While aesthetically pleasing, most of our facilities are in need of significant repair and renovation.
On the whole, our community facilities and infrastructure have been kept largely functional, but it is time to devote the attention and investment necessary to meet community needs, let alone current safety or accessibility standards.
- Miles of sidewalks and pathways are in poor condition, and our City Engineer has estimated that we could spend on the order of $11 million on sidewalk and trail repair alone.
- To keep the Pavement Condition Index of our streets from deteriorating will require an estimated annual paving expenditure of approximately $1.5 million – up from the current $1 million – and this is assuming a competitive bid environment. As you know, the Engineer’s estimate for the repaving of Magnolia Avenue was $1.3 million. The sole bid submitted was for $1.7 million. So, the estimated $1.5 million required to maintain the condition of our streets could actually have increased to $2 million or more.
- The Veterans Hall and Recreation Building are virtually in the same condition and configuration as when they were originally built 50 to 100 years ago. Bringing them to where they should be would require an estimated investment of $6 to $7 million.
- The Community Pool cannot remain open much longer without substantial investment. While short-term fixes may postpone the eventual closing, safety issues are significant and the pool is losing an estimated 1 million gallons of water per year via unidentified leaks. Based on the recently completed Aquatics Master Plan, the cost of a modern and safe facility that meets community needs is estimated at between $12 million and $15 million.
- Our beloved City Hall has significant needs rarely seen by the public. Low, open ceilings with exposed wires, water intrusion during storms, fire safety and accessibility issues are just a few of the problems.
At times, I hear comments asserting that the City does not have the space needed to support our programs. The fact is we have the “space”. We just need to make the investment needed to address the efficiency, functionality and accessibility issues that limit program opportunities as well as use by staff, the very young, and seniors.
The bottom line fact is that many of our facilities and amenities are inefficient, have significant condition issues limiting usage, and are not where they should be relative to life, safety, and accessibility standards – let alone to where they should be for a community like Piedmont.
Like the School District’s initiatives to invest in modernizing the Elementary Schools and High School to meet 21st Century needs, it is time to apply a similar focus to improving our City facilities and infrastructure.
In recent years, under the leadership of the City Council and with the support of city staff, there has been the political and organizational will to take a fresh and realistic look at our facilities and systems and to make the initial investment needed to develop a clear understanding of the issues and the opportunities for improvement.
While we have been doing the work necessary to develop that understanding—- the reality is that the City’s financial position, in the best of times, will only support an incremental approach to completing the work that needs to be done.
Unfortunately, for many facilities, an incremental approach will not get us to where we need to be.
Maintaining the current condition of our street paving, addressing unsafe sidewalks and pathways, and implementing priority pedestrian and bicycle safety projects will cost an estimated $23 million.
Factoring in the Recreation Building and the basement of City Hall adds up to $7 million. To address the pool and Veterans Hall, add another $17 million. Linda Beach Park improvements are estimated to cost $7 million. Improving Coaches Field could cost up to $4 million. All together these projects total $58 million.
Looking to the future, barring a natural disaster, bringing our facilities and civic infrastructure into the 21st century will be the City’s biggest challenge and greatest opportunity for the betterment of the Piedmont community.
With attention and investment our facilities can continue to serve the community for another 100 years. Doing what has to be done will take time, focus, persistence, vision and leadership. To our good fortune, we have all the right people in place, with the right mix of vision and talent, to meet these challenges.