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Council passes two-year balanced budget

by Steven Felschundneff | steven@claremont-courier.com

On Tuesday the Claremont City Council passed a two-year balanced budget that implements a few changes while maintaining existing levels of service with “some additional resources to improve current services.”

The budget represents the culmination of months of effort by city staff, but also that of the residents of Claremont. Beginning in January, the city solicited input from the public to determine residents’ top priorities. The city conducted three community focus groups and an online survey that generated 800 responses. Additionally, the city conducted two parallel surveys, one for residents and the other for the business community, to ascertain how people would like to see Claremont’s portion of the American Rescue Plan Act allocated.

The list of priorities includes: preserving natural, cultural, and historic resources; maintaining financial stability; investing in the maintenance and improvement of infrastructure; ensuring safety through community-based policing and emergency preparedness; increasing neighborhood livability and expanding business opportunities; promoting community engagement through transparency and communication; developing anti-racist, anti-discrimination policies and planning to achieve community and organizational diversity, equity and inclusion.

“Our staff has worked diligently to construct a budget for 2022-24 that continues to provide the high levels of service expected in Claremont, and that maintains the quality programs and services that contribute to the quality of life for residents, businesses and visitors to our city. This budget conservatively estimates the city’s revenues, maximizes available resources, and prudently recommends expenditures to work towards achieving the priorities and objectives established by the city council,” City Manager Adam Pirrie stated in his budget report.

The budget covers two fiscal years, 2022-2023 and 2023-2024, a return to a practice that Claremont had abandoned in years past in favor of single-year budgets. This was achieved in part due to end of pandemic era uncertainty, plus federal ARPA funds, which made it easier to predict the financial landscape looking forward.

The budget includes “discretionary payments” of $250,000 per fiscal year to pay down the unfunded liability in the city’s pension plan. These are in addition to the required yearly payments to CalPERS.

The city will contribute about $500,000 annually to the Operating and Environmental Emergency Reserve, resulting in a balance of $6,991,787, or 22.5% of general fund operating expenditures. This will bring the fund to just shy of 25% of expenditures, which is the target under city policy. The city had to tap into this fund recently to pay for the response to the January windstorm and the monthslong clean up effort.

“I am proud to present a balanced budget that not only meets the operational needs of the city, but also sets aside funding to address long-term pension liabilities and replenish the city’s general fund reserve balance,” Pirrie said.

Revenue numbers

Total projected revenue for 2022-23 is $59,703,595, of which just over 50% comes from the general fund at $30,600,506. Other large portions include $14,301,795 in special revenue funds, which includes ARPA monies and enterprise funds at $10,120,281.

The largest source of revenue in the general fund, about 37%, or $11,495,600, comes from property taxes. That is 4.4% more than in the past budget, 2% of which is an inflationary increase allowed under Proposition 13, and the remainder comes from reassessments that are triggered when a home changes hands or is significantly expanded.

The next largest chunk of revenue, $7,180,000, comes from sales taxes, which have increased significantly over the past few years due to a high number of vehicle sales and the city’s share of taxes collected from residents purchasing goods online.

Revenues for 2023-24 are projected to decrease by about $3.35 million because that budget does not include any ARPA funds. Expenditures will also be lower for that year because many of the ARPA expenses were one-time outlays such as the roughly $1 million for upgrading police radio communications and the COVID-related stipends given to most employees.

The city’s expenditures for 2022-23 are projected to be $59,582,303, of which $28,098,430, or 47% goes toward general fund expenses. Rounding out the expenditure pie are special revenue funds at $14,193,259; enterprise funds at $11,099,800; internal services at $2,781,345; successor agency at $1,724,038; and debt services at $1,685,331.

General fund expenditures are $30,090,972, the largest chunk of which goes to the police department at $13,649,356 or roughly 45% of the total. That is followed by community development at $3,758,996; administrative services at $2,639,801; general services at $2,609,394; human services at $2,552,375; transfers out at $1,992,542; community services at $1,967,756; and financial services at $920,752.

Total revenues

Total revenues for 2023-24 are projected to be $56,542,854, while expenditures are higher at $59,501,032. This discrepancy is a result of roughly $7.2 million accumulated in a capitol improvement fund from previous years which is not reflected in revenues. Examples of this funding include the state’s gas tax which pays for city street construction projects and Measure W monies which will go to storm drain improvements.

During public comment, Claremont resident Jim Belna admonished the council and the city manager for passing a budget that he claimed was not balanced, citing $3 million in new CalPERS unfunded debts annually which continue to pile up, and stating that the $250,000 discretionary payment would have little impact on paying this down. He said a state auditor listed Claremont as one of the most fiscally troubled cities in the state and that the city is at high risk for default on the pension obligations.

During its deliberation, the council pushed back on Belna’s assertions. Councilmember Corey Calaycay asked Pirrie how he defined a balanced budget. To which the city manager responded, “A budget where revenues exceed expenditures.”

Calaycay pressed further, asking Pirrie whether having liabilities or loans would signify a budget shortfall. “Or as long as you have cash flow to cover your expenses through the course of the budget year, you still have a balanced budget?”

When asked for a clarification Thursday morning Pirrie responded, “Provided the city’s expenditures, including contractually required annual payments or contributions towards outstanding pension and debt obligations do not exceed revenues for the budget year, the budget would be considered balanced.”

“Yes, we do recognize that there is a pension debt but it’s not due all at one time. To the point that it would be, then yes, we have problem and we don’t have a balanced budget. It doesn’t mean you are debt free, it just means you can cover yourself over the course of the operating period.” Calaycay said. “So I just want to make sure we clarify in light of the accusations made.”

At issue is Claremont’s status as a “full service city,” meaning we hire employees for most of our services including sanitation and police. Critics argue that if we contracted out more jobs or went to a program sponsoring our own pensions that could save the city a substantial amount of money in the long run.

Pirrie responded that terminating CalPERS could trigger a demand to pay off the entire unfunded liability immediately, which far exceeds the city’s savings. In addition, a calculation that the city will return to parity with its pension obligations by 2045 is based on a slow but steady stream of new employees covered under the California Public Employees’ Pension Reform Act, which has a lower pension obligation that those with “classic” benefits.

“That 2045 date is actually what the actuarial evaluations show as the final year of the payments on the unfunded liability coming due,” Pirrie said.

For those who are curious and would like to explore the budget in finer detail, the city has the complete document on it website.

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