Both spending cuts and potential tax increases are on the table in Westminster, where a divided City Council is grappling over how to deal with a massive budget deficit that could bankrupt the city by 2018.
It has so far been a guessing game as to whether there will be enough votes for either proposal. Two ideologically driven councilmen, Tyler Diep and mayor Tri Ta, have indicated that the city can and should make more cuts before the council votes on any tax increases that would further burden residents. Diep, who agendized the vote for a $3 million budget cut, has vowed to never vote for a tax increase.
By contrast, councilwomen Margie Rice and Diana Carey say budget cuts would be devastating to a city that has been in austerity mode for years, and say residents should be given the choice at the ballot box on whether they want to pay more taxes or accept cuts in city services.
At a study session Wednesday night, city manager Eddie Manfro made clear that cuts of any magnitude would have a major impact on staff and services.
“It’s a budget that’s people-intensive. This is not paper clips and staplers,” said Manfro, who was the assistant city manager in 2011, when the city was forced to lay off 67 employees to deal with a $10.4 million shortfall created by Gov. Jerry Brown’s decision to abolish redevelopment agencies, a tool the city had relied on unusually heavily for years.
“I’ve been through this before. I worked on the layoff plan, night and day, and it was brutal. This one would be worse, no doubt.”
Can The City Take More Cuts?
In previous years, city officials have relied on a reserve fund and drawing on internal service funds, money typically set aside for departmental needs, to balance their general fund deficit.
But the city’s relatively small revenue stream — it brings in $454 in tax dollars per capita compared to an average of $683 per capita among neighboring cities — makes this untenable going forward.
Irwin Bornstein, a former city finance official who is providing temporary consulting to Westminster, warned councilmembers Wednesday that their deadline is looming.
“The short answer is you have two more fiscal years,” said Irwin Bornstein. “You don’t have enough reserves to get through the 2018-19 [fiscal year].”
There is some good news — compared to his projections six months earlier, Bornstein said the year-to-year budget deficit now looks to be $4.7 million smaller over the next four years.
The structural deficit however, or the gap in funds once you take away one-time funds and add in long term needs like road maintenance and public employee pension costs, will grow faster than previously expected. The structural deficit is expected to grow to $15.5 million by 2018.
Eliminating this year’s $11.9 million structural deficit through cuts alone would mean a 30 percent reduction in the budget, or about 52 staff positions, according to an earlier report by Bornstein.
City officials estimate a one percent sales tax increase would provide an additional $12 to $13 million in revenue a year, while a utility user tax increase would bring in another $1.25 million a year.
The city also has a lower property tax rate than surrounding cities, due in part to the action of a previous city council to lower the rate, before the implementation of Proposition 13, which froze property tax rates at 1978 levels.
“Property values were escalating at a rapid rate and residents were concerned if they could remain in their homes if taxes kept going up,” said Don Anderson, a former city employee and member of its citizen financial task force. “Unfortunately no other city took this action, and prop. 13 came along and now Westminster is stuck with what I call an artificially low property rate.”
The task force offered recommendations Wednesday ranging from small to drastic, and included: proposals to better enforce business license taxes and code enforcement fees; relocating City Hall to the mostly vacant police department building; seeking alternatives to the city’s fire services contract with the Orange County Fire Authority; considering using the county Sheriff’s Department for police services; and selling the city’s water utility.
The city could also declare a fiscal emergency, which would allow officials to alter or postpone some of its contractual obligations, such as labor agreements or retirement benefits. Most declarations of fiscal emergency in California, however, have been invalidated in court.
Both Rice and Carey were vehemently opposed to contracting with the county for police services.
Rice pointed to the city’s OCFA contract, saying that any savings from closing the police department would only result in more problems later because the loss of local control over police services.
“When we worked with [OCFA], we saved money for the first two years, then after that we lost control. They increase their wages there and they do what they want to do and we have to pay it,” said Rice.
Carey said that even if the city did contract with the county Sheriff’s Department, they would still be on the hook for pension obligations for current and retired city police officers. She added that more positions within the police department could be filled by civilians, who would make less than sworn staff.
Councilman Sergio Contreras, who along with Carey is running for re-election this year, suggested that the city examine some of its contracts with maintenance companies and charges for city facilities. The city council has routinely waived or reduced certain fees for groups renting its community center.
“Some people are getting sweetheart deals at the Rose Center for use of our facility,” Contreras said.
Much of the meeting was a terse and heated exchange between Diep, and Rice and Carey. Diep has accused the councilwomen of dithering and failing to back up their views with action.
“The prudent thing would be to act as if we have no new money coming in. If we maintain the current level of spending…I would not vote for it,” said Diep. “I think staff, especially the city manager and finance staff, need to know that. Okay, if there’s no new money, there’s at least the political will to cut.”
Rice and Carey have accused Diep of grandstanding.
“We know where you stand but have you come up with any ideas of what we can do?” Rice said, later adding: “People want what they want and they want to pay for it.”
Ta compared the city to a business that needs to “live within its means,” and said other businesses in the city don’t have the option to raise taxes when the budget gets tight. He said he is still “evaluating all the options.”
Carey disputed the notion that there is any wasteful spending left to cut.
“At some point you have to look around and make an investment in the future of your city. We have no good options here – it’s time to set aside ideology,” said Carey.
Council members will vote on the $3 million cut and tax increase at the first council meeting in June. At that time, the city manager will also provide an update on the feasibility of the financial task force’s recommendations.
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