Mired in Dysfunction, Westminster Council Seeks to Avoid Future Bankruptcy

(left to right) Councilmembers Margie Rice, Tyler Diep and Diana Carey.

Just four years after making steep cuts to the city’s budget and staffing, and facing potential bankruptcy in the coming years, Westminster City Council members must figure out how to eliminate a $12.6 million structural deficit in a city fatigued by recession-era cuts.

By the end of 2018, the city is likely to empty its reserve fund, which officials have relied on each year to balance the budget.

Yet while there is little appetite for further cuts, it’s unclear whether there will be enough votes for the other obvious solution: tax increases.

Council members have floated the possibility placing a measure on the Nov. 2016 ballot for a one percent sales tax increase, but so far only two council members, Diana Carey and Margie Rice, have indicated they would support a ballot measure.

“It isn’t about taxing and revenue, this is about services, and asking people, ‘what do you want?’ This is about maintaining your services,” said Carey. “We live in a city that is one of the lowest to live in, tax wise…and at some point, you gotta bite the bullet.”

Carey told her colleagues that if they don’t vote for a tax measure, there’s just one option left.

“You file for bankruptcy,” Carey said. “Everybody needs to go on a field trip out to [the city of] San Berardino. Your property taxes go down, you don’t get any investment from the business community, it’s a downward spiral.”

Carey spoke at a budget study session last month where an outside consultant delivered a mixture of good and bad news.

The consultant, Irwin Bornstein, was hired to analyze the city budget and help devise solutions in the absence of a permanent finance director. The previous finance director, Michael Solorza, was fired earlier this year for making miscalculations about the city budget.

A chart from the study session presentation shows Solorza's budget projections ("original estimates") alongside Bornstein's revised estimates. Bornstein noted that a lot of new information has become available since Solorza calculated his original projections.

A chart from the study session presentation shows Solorza’s budget projections (“original estimates”) alongside Bornstein’s revised estimates. Bornstein noted that new information has become available since Solorza calculated his original projections.

 

The good news is that Solorza over-estimated budget deficits in his three-year projection, and they appear to be much lower than previously expected. He also underestimated incoming revenue. However, the structural deficit — the city’s long-term shortfall — reveals a more dire situation.

Although the structural deficit has shrunk from $12.9 million in 2011 to $9.8 million this year, that amount is expected to go back up once certain realities are taken into account.

The city will need to spend $5 million to $6.7 million each year over the next decade in order to maintain all of its roads, Bornstein said. Previously, the city used redevelopment funds to provide $5 million a year in road maintenance. But with that funding source now defunct, officials have just $1.4 million available. Then there are the ever-rising costs of public employee retirement benefits, which will also outstrip revenue growth, the consultant noted.

Bornstein stressed that strategies that have been used in the past to balance the annual budget are not sustainable.

In addition to relying on the reserve fund, officials have also drawn on internal service funds — money typically set aside for departmental needs — to supplement their general fund deficit. Those funds now need to be stabilized, Bornstein said.

In order to eliminate the 2015-16 structural deficit just through cuts, the city would need to make a 30 percent reduction in its budget, equivalent to about 52 staff positions, according to Bornstein.

If the cuts were shared by all departments, that would mean a loss of about 38 positions from the police department, five from public works, three from community development, and more than a half-dozen from other departments.

A Revenue Problem

One of the underlying causes of Westminster’s persistent deficit is the city’s weak revenue base.

A study based on the 2014-15 fiscal year by the Rosenow Spevacek Group on city revenue cited “major weaknesses” in Westminster’s general revenue base, with the city bringing in total general revenue of $454 per capita compared to an average of $683 per capita among comparable cities, including: Garden Grove, Fountain Valley, Huntington Beach, Buena Park and Santa Ana.

A chart from Bornstein's presentation compares general revenues per capita in Westminster with five neighboring cities.

A chart from Bornstein’s presentation compares general revenues per capita in Westminster with five neighboring cities.

 

It’s not hard to see why Westminster lags.

The city receives $37 per capita of property tax revenue a year, compared to $164 per capita in neighboring cities. The study also noted that neighboring cities had, on average, four times as much hotel bed tax revenue, receiving $32 per capita compared to $6 in Westminster.

Raising the property tax to be on par with other cities would bring an additional $11.6 million a year in revenue to the city, according to Bornstein.

A one percent increase in sales tax would generate $13.7 million a year, according to Bornstein’s projections.

What Will the Council Do?

To place a tax measure on the Nov. 2016 ballot, the city will need to submit paperwork by March 11, 2016, according to the county Registrar of Voters. But up to this point council members have not shown signs of reaching any kind of consensus.

Mayor Tri Ta and councilman Sergio Contreras were silent throughout the study session and did not want to talk after the meeting.

Councilmember Tyler Diep has in some respects embodied the council’s dysfunction by calling on his colleagues to schedule a vote on a tax measure, even though he has said he would not vote for any tax increases.

“We can sit here and speculate, or test out the waters by scheduling something and force the five of us to take a stand,” Diep said. “If we don’t do anything, we can have ten more presentations like this, it doesn’t change the impending outcome.”

He added: “I dare to ask my colleague, Carey, if she feels strongly about maintaining the level of services, would she direct the city clerk to place an item before the council before December or January?”

That sparked a terse exchange.

“Did you commit yourself?” Asked Councilwoman Margie Rice. “You want everybody else to but you don’t open your mouth.”

Diep responded: “I will not vote for any tax increase ballot measure.”

Rice shot back: “Then get out of my way.”

Carey has said the time is not right for the council to vote on a ballot measure. The city needs to do public outreach so voters understand how city services will be impacted by further budget cuts, she said.

“We do have a plan, and we should stick to it, ” Carey said. “Our plan right now is to have the mayor’s task force work on it. We’ve hired a consultant to go out and talk to our community…and at that time, that’s the appropriate time to have it on the ballot.”

Carey went on to say that voting on the item too early would only draw the attention of right-wing activists from other parts of the county who oppose tax increases on principle.

“I’m not going to undercut it, timing is critical…If you put it on the ballot now, you’ll get all the folks from the Lincoln Club who live in five million-dollar homes,” Carey said. “I’ve been doing that and I have not had one group that’s said anything negative. But you’re not going to force me into anything, and I resent that.”

After the meeting, Rice said Diep has been trying to force a vote so that it fails.

“He wants us to put it on [the ballot] now so it’ll fail,” Rice said, going on to complain about Diep’s commitment to his council duties. “He doesn’t come to closed session, he shows up late, he don’t do a damn thing.”

Diep, who would only respond to questions by text message, later said that he “simply wanted city employees and the public to differentiate between political lip service and reality.”

“Telling police officers you are in favor of raising taxes is different than voting for it,” Diep wrote in a text to a reporter.

When asked what he thinks the city should do to address its budget problems, Diep pointed to the recent approval of public employee contracts, which did not increase salaries but included one-time stipends.

“The City Council can start by stop spending money that we do not have. I find it troubling that salaries and benefits were increased earlier this year despite the budget deficit,” wrote Diep in a text.

Thy Vo at tvo@voiceofoc.org or follow her on Twitter @thyanhvo.