Former City Manager Blamed for Santa Ana’s Budget Crisis

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Santa Ana City Council is scheduled Monday night to approve labor agreements with police officers and service employees that would save the city about $15 million, a significant step in the city’s slow climb out of a projected $30-million budget hole.

And now as they start to make measurable progress toward a balanced budget for next fiscal year, council members are beginning to point fingers at former City Manager Dave Ream for allowing the city to fall so far behind in the first place.

The recession arguably hit Santa Ana harder than it did any other Orange County city. The housing crash had decimated the city’s tax base and its budgetary reserves shrank despite years of cutbacks — including layoffs of dozens of city workers and regular City Hall closures.

Yet in September 2010 with Mayor Miguel Pulido in an election fight with local attorney Alfredo Amezcua, the Santa Ana City Council unanimously agreed to a contract extension with the city’s fire union. The contract gives firefighters a raise that takes effect in January and allows them to keep receiving “premium pay” for skills that many don’t use.

A few months later after Pulido had been re-elected, the council made a similar deal with the city’s police union, giving officers an across-the-board raise that took effect in July.

City Council members now say they made these deals because Ream — who had spent the better part of a generation running Santa Ana — said the city could afford them. In March, Ream announced his retirement, and by September city officials were acknowledging the $30-million budget deficit.

After months of dealing with the deficit and talking of a possible bankruptcy, some members of the City Council are now willing to say that Ream withheld key information on the health of the budget.

“I think there was some truth in that information that was necessary, wasn’t completely disclosed, and so that was a problem,” said Councilman Vincent Sarmiento.

Council members said that when they had pointed questions about the sustainability of city spending in recent years, Ream simply told them the city would be OK. “We were told we could fund additional [labor agreement] promises when in fact we could not,” said Councilwoman Michele Martinez.

Ream declined a reporter’s request for comment, saying only that he wished council members success.

Police and fire agreements were set to expire in June this year and June next year respectively. But the new agreements extended those deadlines to 2013 and 2014. As evidenced by the deal now before the City Council, the unions are willing to reopen the contracts. A combination of givebacks and outsourcing could close the deficit.

But the city’s weak negotiating position becomes clear when reviewing key points in the new agreement with police. Although police officers would be contributing substantially more toward their pensions, the additional contributions are to come from salary raises they received this year and are set to receive again next July, according to a city staff report.

The deal with police officers saves the city $12.2 million into 2013, the staff report says. But much of those costs, like deferrals on police overtime payouts, would revive in 18 months, proving to be only a temporary fix to the city’s built-in budget deficit.

Some council members say that had Ream given them an accurate financial picture, they would have tackled the problem as early as two years ago.

“Had we had more and clearer information at the time, we would know to begin to address some changes sooner rather than later,” said Councilman David Benavides.

Martinez, according to Councilman Sal Tinajero, was the most vocal council member when it came to questions about whether the city could afford the union contracts.

But despite her concerns, Martinez voted with her colleagues — without discussion — to approve the contracts, official meeting minutes show.

“When it’s all said and done, the ball drops with the elected official. You have to take responsibility. I’m not going to shy away from it,” Martinez said.

Other council members were also careful to not place the entire blame on Ream.

“We were addressing what we thought was the whole, and the reduction in cost that needed to be done at that time, and it just wasn’t as much as we needed to do,” Benavides said.

The consequences have been serious. Moody’s Investors Service recently downgraded the rating of the certificates of participation for Santa Ana’s 1998 City Hall expansion project, reflecting what the credit rating agency says is the city’s weakening financial position.

Three days before Ream announced his retirement, the City Council unanimously approved a top-to-bottom financial review by the municipal consultant Management Partners. The consultant drafted a report in August that detailed a massive budget crisis caused by the recession and spiraling public safety spending.

Regardless of what council members say they were told by Ream, there were signs years ago showing the city’s weakening financial position.

As early as 2008, The Orange County Register’s Doug Irving was writing about large, looming, built-in budget deficits. In an article about a hiring freeze prompted by the city’s then $15-million shortfall, Irving cited a $28-million “structural imbalance.”

Martinez said she first raised concerns to her colleagues about pension obligations and the city’s other financial problems after the nationwide housing crash and resulting financial crisis in 2008.

Martinez said she read articles in the Register about the unfunded liability cities were faced with. After studying Santa Ana’s revenue and expense trends, she came to the conclusion that agreements with the city’s labor groups needed a major overhaul.

“The money wasn’t coming in fast enough,” Martinez said.

But Ream assured the council that the city could afford the labor contracts, Martinez and Tinajero said. And other council members just “nodded their heads,” Martinez said, when told the obligations would eventually break the budget.

“Who do you believe? The administrator that’s in charge or the council member that’s there only 1 percent of the time?” Martinez said.

Please contact Adam Elmahrek directly at aelmahrek@voiceofoc.org and follow him on Twitter: twitter.com/adamelmahrek. And add your voice with a letter to the editor.

 

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